>
"More than 30 percent of borrowers with subprime adjustable-
rate mortgages are behind on their payments before their loans
reset at a higher rate, according to estimates from analysts at
Credit Suisse Group. The bank projects 775,000 homes with $143
billion of mortgage debt will go into foreclosure in the next
two years."
>
Hence, the political and economic motivation for doing something — anything — rather than look like they are just sitting there.
Which leads us to the just announced "rescue" plan. While it isn’t exactly binding, it does have the support of "major investors." I assume this refers to the various banks, brokerages and funds that own the increasingly worth less and less (though not "worthless") paper.
The terms of the plan applies to "loans originated between Jan. 1, 2005, and July 31,
2007, that reset between Jan. 1, 2008, and July 31, 2010." According to the WSJ, the Office of
Thrift Supervision Director John Reich said that "the plan
could help "tens of thousands" of homeowners."
Tens of thousands? The subprime foreclosure forecast for 2008-09 is over 3/4 of a million homes.
The WSJ asked readers, Do you support the Treasury’s plan to freeze rates on some mortgages? Their answer was quite similar to mine:
I am not sure why the rest of the crowd voted no, but I can tell you my reasons: This plan does nothing to address the issues which led to the snafu in the first place:
• The FOMC, who took rates down to historic lows, and left them there for a year;
• Ratings agencies, (not unlike the equity scandal of the 1990s) were in cahoots with underwriters, to the detriment of investors;
• The Federal Reserve, in their capacity of over-seers of the Banking industry, failed to supervise the rampant issuance of irresponsible debt;
I am sure you can think of additional reasons as to why this is unlikely to have a major impact. (Use the comments for this).
>
Sources:
U.S. Mortgage Delinquencies Rise to 20-Year High
Kathleen M. Howley
Bloomberg, Dec. 6 2007
http://www.bloomberg.com/apps/news?pid=20601087&sid=aalYt3UzOuLU&
Bush and Paulson Unveil Plan To Aid Struggling Homeowners
DAMIAN PALETTA, AMY CHOZICK and JOHN D. MCKINNON
WSJ, December 6, 2007 2:44 p.m.
http://online.wsj.com/article/SB119696216000715924.html
Question of the Day
Do you support the Treasury’s plan to freeze rates on some mortgages?
WSJ.com Forums, Thu Dec 06, 2007 2:28 pm
http://forums.wsj.com/viewtopic.php?t=1035
Does this plan take irresponsible borrowers off the hook and effectively reward them with a nicer house than they can afford?
It certainly looks that way
I said this yesterday and will say it again: Who in their right mind will lend money for home ownership ever again if the contract can become null and void the second the hoi polloi start screaming to their elected officials? Fannie? Freddie? Hell, they’re bankrupt as it is and will only lend up to $417k which does nothing for either coast of the United States. Everyone in a protected mortgage won’t ever leave cause they’ll never get a better deal. Home prices will not reset to more sane levels. The Paulson proposal is a clusterfuck for generations X, Y and Z. Thank you very much. If this continues, the US is going to be just like Japan in the ’90s.
So now we have a giant bubble and we’re not going to let it pop. How exactly is this going to help drive economic growth? Oh, because instead of paying their mortgage, these same credit morons are going to rack up more credit card debt and Best Buy. That’s genius.
(see:http://us1.institutionalriskanalytics.com/pub/IRAMain.asp)
(CNN, via Atrios)
People who do qualify:
>> Have an income and live in their homes
>> Currently making their payments on time
>> Would default if their interest went up
>> ARM mortgage has to have been taken between 01/05 and 07/07
>> Has a rate reset to occur between 1/08 and 1/10
People don’t qualify whom:
>> Have missed payment
>> Can afford mortgage rate increase
>> Don’t have an income
>> Own homes which are worth less than their mortgage
The last point is material, (Atrios noted), as it removes from the ranks of the “Saved” all those who “might be able to refinance on their own”.
Just food for thought.
The foxes have hatched a plan to save the hen-house!
It involves the farmer paying for more chickens.
I’m glad that I went long right before T-giving. No way this admin lets the market fall.
This seems to be panic insanity on the part of the banking system.
What will happen if this plan doesn’t work? What then?
So much for ‘free’ markets.
Fraud statutes were probably strong enough to deal with the less honest relationship(s) between mortgage brokers, appraisers and borrowers but were almost certainly not adequately enforced and the lack of policy in regards to encouraging sales agents to act in the buyer’s interest (and the ‘buyer’ here is probably both the borrower and the securitizing organization). How about this as an addition to BR’s list:
• State lawmakers and regulators for failing to require licensing and/or fiduciary responsibility of loan brokers and duly police local and/or regional loan origination and warehouse operations;
I’ve thought for a while now that George Bush was nuts now I know he is.
HEY … there’s something fundamentally wrong here. WTF ever happened to CONTRACT LAW.
And, am I the only one that sees this new precedent as completely changing the mortgage industry. Are investors going to continue to loan on the same terms, knowing the government can come in and change the terms for political gain.
PS: The so-called freeze looks a lot more political then fiscal or financial; more about butt covering and spin control than anything else. I doubt it will have much impact in the real world. JMO
This is indeed a glorious day for America, Right Comrades!!
Mortgage brokers, investment bankers, appraisers, quasi govi entities, rating agencies, insurers should all be accused of racketeering. RICO the bastards and give what’s left of their equity to the poor subprime borrowers.
Won’t happen but I needed a happy thought…
Lesson learned: The Govt will only help you if you are completely reckless and create a huge problem.
The folks that are scraping by to make their minimum credit card payments need to hatch a plan that creates more pain for their CC companies. Then they’ll get a “plan” too.
Ditto Richard Leite
“More than 30 percent of borrowers with subprime adjustable- rate mortgages are behind on their payments before their loans reset at a higher rate”
That means that this freeze won’t help them. These loans are f’ed. Everyone (homeowners and investors) should just take the hit now and get it over with. Delaying isn’t going to help.
I actually think this plan as described is perfect. The terms are narrow enough that very few people will qualify, so the economy won’t suffer the negative consequences of a true bail-out. Yet it will satisfy Washington’s need to appear to be doing something about “the housing crisis”, thereby reducing the chances that a more substantial bail-out ever gets implemented.
This pretty well sums the subprime lender game>
THE GAME THAT YOU’RE PLAYIN’ IS TOO HIGH CLASS
AND YOU’RE LIVIN’ BEYOND ALL YOUR MEANS
AND THE MAN IN THE COAT HAS JUST BOUGHT A NEW CAR
ON THE PROFIT HE MADE OFF YOUR DREAMS…
TRAFFIC
(LOW SPARK OF HIGH HEELED BOYS)
video here
http://www.youtube.com/watch?v=ZVlbgqmxXNY
Just say no to bailout. On the other hand, I’ve made my share of bad choices and I should be compensated for it!
mappo,
I agree, though “perfect” might be a reach. No intervention at all is a political non-starter. This plan appears to simply recognize the fact that paint-by-numbers lending lacks the infrastructure to do artisanal workouts, and formalizes a management by checkbox approach.
“WTF ever happened to CONTRACT LAW.”
Really there would be less damage done if the government simply made cash payments to the “victims”.
Lets see if we can turn off the bold!
Who pays for this ? Do the major lenders accept the huge write downs that this change will force ? doubt it.
Taypayer ? Yep most likely.
This idea is truly insane.
The only good point I’ve heard in its favor is that this is just a token gesture so that the real comrades don’t try to use the govt to get more involved.
I agree w/ several comments. this plan if enacted will negatively change the mortgage industry for a long time. Contract law is broken, so rates will have to go up materially to compensate lenders to accept credit risk AND NOW THE NEW ‘LAW CHANGE” risk. The game will change for a LONG time. Also, it teaches consumers that if you take risks, you better take HUGE risks so if it goes wrong, the Govt will “have” to bail you out. I love it…I get the chance of the upside of a stupid deal if it works and if it doesn’t…oh well, the downside is capped. The plan doesn’t help the issue of unsold homes inventory because the protected “squatters” aren’t going to move for a LONG time and new mortgage rates are going to be so high that far fewer people will qualify for new loans. So we’ll have a stagnant RE mkt for yrs. Sweet. What’s not to love about that.
I’s just don’t know what you crazy people are talking about, It’s Christmas and this totally saves the 600 Trillion in derivatives… And yes they will keep stepping in until they have printed 600 Trillion in Cash… The printing press is just sitting there, Why have it, if your not going to use it.
This is going to save 4Q earnings, I mean they will be great now…. Cause….
This is all just silly bear talk. The fed is going to cut to 1%…. in-fact they are going to re inflate so much, so fast the NASDAQ bubble is coming back….
I believe……. Anyone seen my dog? he was taken by a green woman riding a broom.
I agree w/ several comments. this plan if enacted will negatively change the mortgage industry for a long time. Contract law is broken, so rates will have to go up materially to compensate lenders to accept credit risk AND NOW THE NEW ‘LAW CHANGE” risk. The game will change for a LONG time. Also, it teaches consumers that if you take risks, you better take HUGE risks so if it goes wrong, the Govt will “have” to bail you out. I love it…I get the chance of the upside of a stupid deal if it works and if it doesn’t…oh well, the downside is capped. The plan doesn’t help the issue of unsold homes inventory because the protected “squatters” aren’t going to move for a LONG time and new mortgage rates are going to be so high that far fewer people will qualify for new loans. So we’ll have a stagnant RE mkt for yrs. Sweet. What’s not to love about that.
I am sure you can think of additional reasons as to why this is unlikely to have a major impact.
NUMBER ONE: The lying, thieving, immoral, incompetent Bush administration can’t do anything right.
There are no other reasons.
The root problem is that the nation’s housing stock is priced too high relative to incomes.
The plan doesn’t address the affordability problem, it only temporarily creates an artifical floor for home prices.
House prices need to adjust lower. Until they do, I think the plan only prolongs the inevitable pain.
couple of bush quotes from the press release propelling him closer to the head of the pack for village idiot award
“The homeowners deserve our help.”
“We should not bail out lenders, real estate speculators or those made the reckless decision to buy a home they knew they could never afford,” Bush said after meeting with industry leaders at the White House. “But there are some responsible homeowners who could avoid foreclosure with some assistance.”
um……
What’s wrong with Roubini’s argument?
“The Treasury plan also does not involve – so far – any use of public money; thus, it does not represent a “bailout” of either borrowers or lenders/investors; investors are not bailed out as there is no transfer of public resources to them; if anything they have to accept a haircut – in NPV terms – on the initial value of their claims; but such investors are also better off under this scheme as – under the alternative of massive defaults – the losses and NPV haircuts would have been much larger; debtors are not really bailed out either as many of them would have defaulted anyhow on their mortgages and would have thus obtained eventually greater relief by defaulting than by keep on servicing their mortgages at the lower frozen teaser rates.”
Contract law is NOT broken by this proposal, which was very carefully written (by lawyers) to comply with all applicable contracts, tax and accounting regimes. Tanta of Calculated Risk spells this out in great detail: http://calculatedrisk.blogspot.com/2007/12/plan-my-initial-reaction.html.
Also see the American Securitization Forum’s website, with the proposal and a press release, at http://www.americansecuritization.com/story.aspx?id=2174.
Whether it will make any real difference is a whole ‘nother question. But I suppose, as many here have said, its purpose is more to dress up the windows in a properly festive holiday manner.
I’ll start by noting my agreement with most of the points made above and then add a couple or three to think about that don’t seem to be getting the attention they deserve:
1. Will this work ? With very narrow coverage it looks like it barely touches the problem.
2. Is it workable – the Great Tanta on CalculatedRisk has made the point that right now the number of skilled folks qual’d to help out is far below what’s needed. Insufficient as this is it still doesn’t begin to address the increased demand.
3. Even if it “works” a little it still leaves a big bunch on the table that will go to FC. OUCH.
4. What about the other structured debt instruments ? For example buyout based assets or corporate debt ? Why do we all discuss this as if it were only mortgages at risk. We’re already seeing it spread to these other asset classes.
5. This ISN’T a failure of interest rate setting but a failure of due diligence brought about by a total lack of regulatory oversight as the hogs bellied up to the troughs. Where’s the new mechanisms required to take the “shadow” finance system into the light as Gross keeps asking.
That’s probably enough but one area to quibble w/BR about. Blame the FOMC all you want but what was your alternative at the time ? ’03 was a war year and not a time to start raising rates. MUCH more importantly long-term rates didn’t go up and the FOMC couldn’t do anything about the conundrum. Which in terms of huge pools of leraged liquidities will still be with us ex post this mess. Then what ?
Always, ALWAYS, expect the wealthly to act to protect their wealth….
That’s all you need to know to explain why this and FHA, and GSE caps etc will be modified as needed.
And expect, the….less wealthy….like renters to pay.
Just as they always have, through all of history.
They’ll be net payers in taxes (for fed loan guarantees), payers in rent, and really pay up if they want to buy a house from the existing owners class.
It’s how it’s always been, and it seems today will be no different.
I bought my house on 7/31/07 with a 30 yr fixed at 6.625%. Who would have thought I should have bought a bigger house that I could barely afford with a 1% ARM? Where was the Government when I lost my arse catching falling knives like JDSU, CMGI and SFE back in ’00-’02? How can you win this game when the rules change? The less logic you use, the better you do. So where is the safe place for savings if I’m expecting high inflation, taxes and a recession? BWX? TIP? DBA?
Are we sure about the statement that this doesn’t apply to houses worth less than their mortgage? If that is the case, then this plan really is worthless to many/most(?) of the borrowers out there, especially if lenders start pricing in the new risk of gov’t intervention. Greater risk –> higher mortgage rates –> accelerating decreases in home prices –> fewer eligible homes.
ditto richard leiter and many others here. The one thing that will be “frozen” is the housing equity ATM card, since houses are most unlikely to rise in price any longer, and may well continue falling. So the effects, other than people moving into rental units, are not avoided. The contribution to consumer spending that was boosted by MEW from rising house prices is over (for now.)
I don’t owe anybody a dime, and now I wonder why? I’m the chump, just risking his savings in equity markets to be taken to the cleaners by the same as*****s who created mortgage equity instruments and killed the credit markets.
Let the word go out.
This day has been the first in a long, long while that I, Eclectic, have been proud of the leadership provided by government.
Mr. Paulson… hat’s off to you.
Mr. President… hat’s off to you.
Senator Clinton… hat’s off to you.
Congressman Frank… hat’s off to you.
(I’m apolitical and I admire the dialog)
Governor Schwarzenegger… hat’s off to you.
Mr. Jackson… hat’s off to you.
Mrs. Bair… hat’s off to you.
To anyone I’ve not mentioned that has participated in this initial mechanism, I say thank you and hat’s off to you!
Governor Krozner… hat’s off to you, however you are merely a token representative, and not enough.
Chairman Bernanke… hat’s off to you, but it’s not enough… not, not, not. You should have been there. It is time for the Fed to show strong leadership.
—
Finally… this is an excellent first step. However, it’s not really national and hasn’t established the core framework for additional workouts if and when the housing debacle penetrates to higher quality mortgages.
We need a national OMBUDSMAN and we need it now!… Secretary Paulson, although his efforts have been admirable, can NOT be the ombudsman.
Attention Congress and White House:
WRITE the legislation… pass it… sign it… and you’ll extend the success of this good day.
Thank you,
Eclectic… a rational lover and practitioner of…
o-b-j-e-c-t-i-v-o-l-o-g-y
How does a person apply for Canadian citizenship because of government stupidity?
old Vet, green machine
Couldn’t agree more….
Goldman actually slowed down it’s originations in late ’06….only to ramp them back up in January ’07…..just a little conflict there…..
Today I feel utterly embarrassed to say I earn a living in this business. It’s because of the short-sighted way this whole thing is being dealt with. Of all the educated people in the stock market and this is the best they can come up with…..
hold and HOPE Now….
travesty does’nt even begin to describe it.
But let’s take the market up by over-buying the SPY at it’s support level of the day….I’m sure most of you did’nt miss that.
you could’nt make this up even if you tried.
Ciao
MS
I would think all we need to do is to have government loan those who can not afford to pay their mortgages some money. Just dip into the social security trust fund thats at 2 trillion dollars to pay for it and those who default on their loans will have it taken from their future social security payments. Oops, we already dipped into that fund and spent it, just a bunch of IOU’s. Darn.
Thats all right then, China and OPEC is happy to loan us the money to loan to those who can not pay back their loans, they already lend us the money to cover our budget deficits and GWOT supplementals. Right? I mean, the debt is 9+ trillion and counting up 1 million a minute, whats a couple of hundred billion more. Inflate the bubble and test it’s limits. Just make sure you have a parachute handy.
Is it true Bush said all car loans are frozen to 0%apr for five years if you cant make the payments anymore?
The government cannot invalidate private contracts — to do so would violate the Contracts Clause of the Constitution. Those whose interests are impacted by this law will sue and they will win.
this blog is filled with people who cry all day long..
i wonder if anyone plans investment based on what is happening and what can happen in the real world
VS
what is the ideal thing??
how can you guys expect politicians to not play politics? how can you expect the stock market to go to dogs??
yes one day it will all crash but for now it will be propped up using all resources.
so why not come up with some investing idea instead of whining….since no one is going to listen anyways (they are elected by majority vote, remember)
and stop being only SHORT, thats a bad investment strategy when the whole world wants the stock markets to go up.
I think a lot of people are confused by the presence of Paulson and Bush in the announcement. It’s just a photo op for them. It’s really not a government plan, but an industry plan that’s being endorsed by regulators.
No contacts are being voided. No taxpayer money is being used.
I agree with Roubini and Tanta who say this is not a bailout, but not likely to be big enough to have much impact either.
And I don’t think it will have much impact going forward on the securitizations of subprime loans either. That business died.
The real role for government is to step in and re-regulate the financial system. After 30 years, the financial industry has proven that it needs adult supervision at all times. The fantasy that the industry has adequate risk-management procedures in place has been blown up, hopefully forever.
The subprime mess is a textbook example of market failures: assymmetric information, agent-principal conflicts, rent seeking and all the rest.
techy-
you should know better than to present a simplistic view of a complex situation. This is not a stock picker’s blog. The last time I looked it is here to discuss MACRO economics issues… not what long buys you made and are in now need of help to figure out if you want to stay with them or ditch them.
There are other more appropriate forums for that…please find them and use them.
Ciao
MS
>>No taxpayer money is being used.>>
That remains to be seen. Was it not Paulson himself that said these can be funded by municipal bonds?? but then stated that no tax payer money be used….
Same guy…..who also thinks that excess tax receipts auctioned off to the brokers is not help either. Tax money has been used to prop this market up since October of 2002. in the form of Treasurey Auctions. But I guess countering the affects of 9/11 and then knowing you are attacking Iraq would need some additional funding now wouldn’t it?
Ciao
MS
Somehow I feel raped…pass the crisco please.
Fascism – the blurring of the line between government and capital/business.
This program is nothing more than a desperate attempt to keep the ignorant wage slaves making debt payments on a depreciating asset.
The Bush Administration does not give a rats ass about middle and working class mortgage holders. This program is designed to avoid and postpone the financial damage to the investment banks and hedge funds holding this garbage paper.
To all, please, the generallly pompous tone on these comments is getting absurd. Face it, some of you people would like to see the markets and the economy crash because of politics. Politics is more important than making money? If you’ve gotten short because of politics you’re a fool.
We’re dealing with a rigged game here. It’s been rigged since 1913. Learn it, deal with it and make some money.
Sub-prime was a major fuck up by the banks. The money was easy, very easy, until the market for houses collpased. Reversion to the mean, my friends. Happens every time.
Politicians encouraged it and the FED was only too happy to help.
Get the American dream! Live over your head. Keep up with the Joneses. Pay your taxes and keep your mouth shut. The banks, mortgage originators and the credit card companies clean up. The trend is your friend until it ends. That’s what the FED was set up to do!
If I were a banker, I sure as shit don’t want foreclosed properties on my books. The neighbors don’t want foreclosed houses on the block. If I were stupid enough to buy the lender’s bs regarding these ‘teaser rate’ loans I’m the fool.Don’t you think the banker feels a little foolish as well? The teaser rate loans get reset to 8% instead of 11%. Good credit loans can be re-financed. Nobody’s getting off scott free. Lenders will still make money but not as much as they assumed. Foreclosures on the books might get cut in half but they’ll still be big.
All in all, barring the use of taxpayer money, I’m all for this approach and I don’t think there’s any reason for the hysterics. Do you really want 4 foreclosed houses on your block instead of none, 1 or two? I’m not a big fan of regulation but a good reform might be to do away with FED and it’s oversight function of the banking system. A free market couldn’t fuck it up as bad.
Not true
Eclectic said
>>proud of the leadership provided by government.
Leadership would have been not allowing the disintermediation that occured after the repeal of post Depression legislation.
This nonsense reminds me of my college years when an aquaintance broke into a friends house, stole all of his shit then told him he had an idea to get some of his stuff back. Of course we w-o-n-d-e-r-e-d how he knew what happened to the property, but my friend was just delighted to get anything b-a-c-k.
Are some of you disgruntled because maybe you are short or not in the market at all? Surely to the market this is good news. I have a fixed rate so this doesn’t concern me at all. But surely people who would default could benefit from this. So why doesn’t most have any empathy for them. I personally know someone who didn’t have a clue about financing a house get a teaser rate only to see it go from $700 to $1100 a month. Sure he screwed up but doesn’t the lending official share in the blame? He knew this individual couldn’t afford the loan when it appreciated. My friend ended up selling the home at a loss.
I think I just got the “Big Picture”.
This plan is all about redirection.
Get everyone talking about the “fix” so that they stop talking about those that screwed things up to begin with.
This is the beginning of the end of our country, now that the government can (unconstitutionally, I might add) void any contract made if “the people” feel it has suddenly become bad for them.
Barry,
This is nothing more than the government taking more and deeper steps toward the total nationalization of the lower-end mortgage market. We will now have a truly two-class system, and as things get worse and the numbers grow to around $1.75 trillion in screw-ups, look for the response from the government to continue to grow with it. Even FDR wanted most people to save, and put-down 20%.
Remember what BedPan said, “subprime is contained” as they get their money and start their migration.
I must disagree with Stormrunner that this subprime rate freeze is good for the markets. While this announcement may provide a temporary pop in the markets, let’s not forget that what are we seeing is the beginning of the end of an asset and credit bubble of unprecedented proportions. History is rife with examples in which credit-based economies are simply unsustainable.
As for the market, in spite of the recent rally, its technicals are poor. Advance/declines have been terrible for months, volume has, for the most part, been poor, and, even on a day like today, new lows exceed new highs.
We sometimes have very short memories and only filter what we want to see and hear. It is easy to see the rally of the last several days and conclude that we are off to bigger and better things. While that may still happen, I am personally very skeptical and feel that will be trading below the August lows relatively soon.
A plan for such a massive bailout is not a good sign. It’s a signal that government has finally woken up to the massive problems in our economy and is desperate to provide the appearance of doing something to stem the tide.
What a dud! The plan is so self limiting with the criteria its laughable. I guess if you have to ask it isn’t Shock and Awe!
Buffalo Bob.. A response to your post :
Simply put… i am infuriated. I am angry as fuck being a young rising American (aged : 22) that these grown ups.. These leaders of this great country keep running shit in the ground simply for the sake of ‘making money’ or keeping things the way they are… I am tired of this cliche’ term ‘this is just the way things are’ and ‘why care if it doesn’t make you money’. It is really a selfish and mindless way of thinking about things.
No, no one wants 4 foreclosed homes around them… No no one wants people put out on their buts before Christmas. However, if your ass didn’t belong there in the first place (i.e – you simply couldn’t afford it) then you deserve what you get. Beyond $$$$ which is the only thing some people care about and is the sole reason for the jacked up culture and society around us, there is something called a collective society. What do you think are the social impacts of this behavior which is ‘this is just the way things are’ and the way this nation and selfish financial firms run things?
Lets see just how much money can buy you when you have someone breaking into your house every other month and crime rates through the ceiling…. There are real societal impacts to this behavior and people need to wake up .. step away from their trading desks and start realizing this and act like they have some fuckin sense of responsibility beyond their paychecks and their company’s shareholders.
So, lets see what this ‘this is just the way things are’ attitude has gotten us :
* A rising gap between rich and poor
* An out of control national debt
* An out of control avg. American citizen debt
* A failing social security system (and you better fuckin believe I am pissed that I have $$ taken out of my check to pay for something I will never receive). 401K to the rescue? Oh’ great…lets see if I can gamble year on year to ensure I somehow beat inflatin in 40 years and hope tax rates dont devour my nestegg….
* Home price inflation out the wazzu and the govts. solution is to try to sustain these crazy prices…. Beyond you, what about your kids, generations after… How the hell are they supposed to afford these homes? Oh’, but you profitted and banked so who cares…
My background : A pretty well off programmer making near 6 figures. I have nothing really to be in an uproar about. However, looking out into this great nation and seeing things for the way they are… I am disgusted.
To think that the people who are making the most amount of money in this world actually dont produce or make anything …. or contribute to the increased well-being of society… I am sorry but that is a society run amuck…. And the great institution can do all they want to keep it going ‘as the way things are’… but there are serious prices to pay for a society structured in this manor and sadly morons who are pushing it in this direction wont see these consequences until they roll over them like a freight train.
*Sorry for the profanity and my emotional state while writing this but I feel my view is something that everyone is completely ignoring and this is where the focus should be… What a world we live in that the only thing people care about is $$$.. sickening
Peter Davis said:
>>I must disagree with Stormrunner that this subprime rate freeze is good for the markets.
you must have me confused with someone else I liken these clowns to a thief I crossed paths with in my younger years in retrospect we should have given this kid a sound thrashing, confidence in his charismatic deceptiveness led him to become a career criminal. Many years later I read of his arrest and conviction in a capital criminal case.
I believe our fearless leaders are practicing similar deceptions on a far grander scale.
The American Securitization Forum wrote the rate freeze presented to the public by the President of the United States of America.
I found it on their website americansecuritization.com.
It would appear that some of the firms that sold a lot of the bad debt, are members of the industry group that authored the plan in which they will try to bail themselves out.
Members include Countrywide Home Loans, Ameriquest Mortgage Company, Capital One, Citi Global Markets Inc., Fannie Mae, Freddie Mac, GMAC, JPMorgan Chase, Thornburg Mortgage, Inc., Washington Mutual Bank, MetLife
DBRS, Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s
ABN AMRO, Inc., Banc of America Securities LLC, Barclays Capital Inc., Bear, Stearns & Co. Inc., Countrywide Securities, Credit Suisse, Deutsche Bank Securities Inc., Goldman, Sachs & Co., HSBC Securities (USA) Inc., Lehman Brothers Inc., Merrill Lynch & Co., Morgan Stanley, UBS Investment Bank, PIMCO,
Should Secretary Paulson have disclosed the conflict of interest?
Who is going to profit from the rate freeze modifications?
Who is going to look good if it works, but very bad if it doesn’t?
It looks like the executive summary of Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans, says they’re not going to check homeowner income, and will be allowed to modify loans even if they don’t make contact with the homeowner.
wow
Who’s stocks went up after the announcement?
Notables
CHAIR Greg MedcrafT, Managing Director, Global Head of Securitization,
Societe Generale Corporate & Investment Banking DEputy CHAIR DianE W old, Managing Director, HEAD OF Investment Banking, GMAC-ResCap
SECRETARY Sanjeev Handa, Head of global public markets, TIAA -CREF
TREASURER nelson soares, managing director, HEAD OF U.S. SECURITIZATION BANKIN G GROUP, LEHMAN BROTHERS
EXECUTIVE VICE PRESIDENT JASON H.P. KRAVITT , SENIOR PARTNER , SECURITIZATION PRACTICE , MAYER BROWN, ROWE & MAY LP
EXECUT IVE VICE PRESIDENT LAWRENCE RUBENSTEIN , GENERAL COUNSEL , WELLS FAR GO ASSET SECURITIES CORPORATION
Would you whining people rather see the country spiral into a depression?
This plan has a shot at working. It’s a credit / interest rate swap. There is no bailout…bondholders get a better shot of getting their investment back for the cost of a lower current cash flow.
Letting all these mortgages circle the toilet bowl would implode the system in so many ways. Do you all want your neighborhoods, cities and counties saddled with deserted homes, and all that comes with that, to teach these homeowners a lesson?
Get f’ing real. Quit crying for Christ sake.
Just an observation the posters name is under the post not above it
Jombi also seems to have this confused.
Though I heartily agree with both posters sentimates. Our leadership is probably the worst in American history only time will tell. Research the “whimsical”(MSM condescention tactics) policies of the Ron Paul platform as an escape from the demise of the US as we know it. I’ve yet to see a statesmen more agregiously misquoted than he, there starting to run scared.
This plan reminds me of the time in 2001 when Bush sent everyone a $300 tax rebate check so that we could all take control of our financial future and stop wasteful government spending? Remember how that changed America? I’m sure this will do the same.
green machine & techy2468:
Buy precious metal bullion not the stocks of companies who mine for it. Especially silver.
Jombi:
22 and making six figures; I’d trade places with you in a heartbeat. Don’t be so frustrated! Enjoy life, spend less than you make, and don’t ever loose your social conscience. Maybe your generation can bail us out.
Bob
What crybaby said although I am pessimistic regarding the proposal’s impact which I think will be negligible at best. As far as I can tell it does not violate contract law nor is it a bailout (at least directly) but it may require too much of what we no longer have: Trust or the will to work cogently with each other where trust is lacking.
It’s time for us to head to the Chestnut Tree Cafe and break out the Victory gin. Oh how I love big Brother socialism
I said this yesterday and will say it again: Who in their right mind will lend money for home ownership ever again if the contract can become null and void the second the hoi polloi start screaming to their elected officials?
So you are saying there is an upside to all of this?
Do you guys think that this move just falls far short of doing enough or do you think that this is a complete non-starter? Some seem to feel it will do some good, but not nearly enough.
“This plan does nothing to address the issues which led to the snafu…”
Barry, is isn’t supposed to. This ‘plan’ is in place because of the crisis in credit markets: securities cannot be priced and sold. This is supposed to give the appearance of stability so those markets function at least well enough to prevent collapse of the banking system. That’s it.
As a kid, I remember the president going on TV to talk about going to the moon and such. Now he has to go on TV because we can’t even sell houses without fucking it up.
I’ll say up front that I’m not fond of anyone stepping into this mess that didn’t help make it. I don’t think the foreclosures would/will be nearly as bad as Wall St. is claiming. Foreclosure is just unattractive to all parties in general, to do it on a massive scale even more so.
Having said that, I find the target audience of this “help” somewhat perplexing. They want to help the poor snookered homeowner, but not the “fat cat speculator” who was flipping homes or renting homes. Screw those guys. So for the worst states of this problem, CA, FL, NV, TX, GA?, etc., which are hit hardest because of a massive rise in speculative real estate the help to these speculators will be minimal. Which means their communities and states still get hammered. “Thanks for nothing.”
But that’s politics. Never mind that by the end of it the “fat cat speculators” were probably just as often a dual income couple making about $40K/year doing this on the side after seeing how “easy” it was on tv. By definition, they are speculators and “fat cats”. I guess by not offering the help to those already under water, the rescuers are admitting those folks are lost causes (and are probably right) and just trying to put a cap on the problem by helping those out who still have their head above water? It’s triage in every sense of the word. But you would think the lenders would do that anyway rather than foreclose or jack the rates up 2-4% on these people wouldn’t you? Why do we need the gov’t acting as a mediator here a la LTCM?
I blame the rating agencies. The CDO sellers wouldn’t be able to sell the ocean of debt they did if it were accurately rated. That part being wrong took the governors off every other part of the machine and it went full throttle until it just blew up.
Are some of you disgruntled because maybe you are short or not in the market at all?
No Sam,
I’m disgruntled because I have to work 8 hours a day to earn my money and then I have to work and study another four hours per day to invest it and if I make a mistake in where I put my money I don’t get bailed out. If I loan my money to some clown who is irresponsible with his money the government doesn’t come along and give him someone else’s money so he can pay me back. In other words I am not part of the favored banking cartel. THAT is why I am disgruntled my friend and all I can think to say at this point is:
OFF WITH THEIR HEADS!!
Amen Jombi,
I agree with you completely
there is something called a collective society
Fuck that communist/social insect shit. There are only individuals.( Who–in regard to the issue– should either pay or default on what they owe, collect or repossess the collatoral on what they are owed, or renegotiate the contract to the satisfaction of both parties).
It appears on surface that this plan is nothing more than an attempt to alter p-e-r-c-e-p-t-i-o-n. The targeted group is such a small piece as to have no affect whatsoever on the whole.
How can this address securitized loan packages, in which lies the true problem? It cannot. The only loans that can be affected are those still held individually by institutions, and then only a portion of those qualify. Tens of thousands will not be helped – maybe tens of hundreds, but nowhere near the advertised number.
No doubt there is more to come, a true nationalization of the mortgage industry to prevent collapse – already well under way with the huge borrowings from the Federal Home Loan Banks – which have quietly bailed out Countrywide and others while passing the risk to the U.S. taxpayer.
But this particular plan is nothing but a smokescreen – which may backfire horribly if the capital markets seize due to the p-e-r-c-e-p-t-i-o-n of interference with risk pricing.
The administration that brought you Afghanistan and Iraq is now going to fix the shadow banking system complexity?
What are we going to do – have a War on Foreclosures? Holders of Weapons of Mass Financial Desctruction beware! You are now part of the Axis of Greed!
So, Chief, but you can’t blame this one on al-Qaeda, and going to war won’t cure a damned thing.
>> Do you really want 4 foreclosed houses on your block instead of none, 1 or two?
I’ll take this question…
YES, I DO. For good reasons.
(A) I wanted to buy a home years ago, because I would like to modify my living space to my liking without apartment limitations. But, these 4 “homeowners” prevented that. They outbid me for those homes EVEN THOUGH THEY COULD NOT AFFORD IT. By helping them keep their homes, this bailout plan makes me pay twice as long for being RESPONSIBLE.
Self-interest? Sure! But, since I’ve been responsible and haven’t done anything wrong, why should my self-interest be *subordinated* to the self-interest of those 4 homeowners on my block?
(B) These 4 homeowners are not going to die. They’ll move into apartments and take a big hit on their credit reports. It will change their lives. But, it’s not going to kill them. It won’t even put them on the street, because obviously they can afford rent.
(C) Why do these people deserve anyone’s charity? Life is far more UNFAIR to millions of Americans and billions of people around the world. Think of the following:
(i) the *working* homeless! (Read “Nickel and Dimed: On (Not) Getting By in America”.)
(ii) people living on the streets with mental problems that we don’t want to pay to treat
(iii) the children, if any, of any of those people
(iv) people without health insurance who incur medical debts beyond their ability to pay
(v) the billion or so people without clean drinking water
Surely, everyone here can think of many legitimate charity cases. RECKLESS SPENDERS DO NOT QUALIFY AS CHARITY CASES.
(D) Why must government intervention in the economy focus on propping up bad loans? We can increase investment in other socially desirable outcomes, such as:
(i) developing geothermal power sites,
(ii) shoring up levees, or
(iii) dispatching a “gravity tug” to redirect Apophis from potentially destroying the earth in 2029.
Surely, everyone here can think of *better* ways to prop up the economy than any program to keep people in homes they should have known they couldn’t afford.
Ok, true, no government money is guaranteed yet. So, “blessing” an industry agreement alone isn’t quite costing us responsible savers. (The FED interest rate cuts *are*.) For the time being then, (D) is inapplicable.
Lastly, I do respect the opinions posted thus far, even those that present a different (or even contradictory) point of view.
Qui bono? If lenders are agreeing to this, it’s because it’s in their interest. They’d rather (a) collect a modest rent from the squatters for years while the property (collateral) regains its nominal value (thanks to generous Fed rate cuts) than (b) foreclose so many homes all at once, exacerbating the effect of their stupidity.
Then again, since the eligibility criteria narrow the program participants, maybe it’s purely a political ploy.
Ech, I’m now repeating what others said. (That’s why I said in my long post that I valued others’ opinions on this.)
“I actually think this plan as described is perfect. The terms are narrow enough that very few people will qualify, so the economy won’t suffer the negative consequences of a true bail-out. Yet it will satisfy Washington’s need to appear to be doing something about “the housing crisis”, thereby reducing the chances that a more substantial bail-out ever gets implemented.”
Mappo, that’s a damn good point – But rest assured, when things get worse, more programs, or an expansion of this one, will be forthcoming, along with some very low interest rates. Buy gold and silver stocks to counter and profit from the inflation resulting from the continued liquidity injections into the system to keep the party going – Which it seems are almost a certainty at this point. AUY, CDE, PAAS, GG, HL, and UXG are good ones. (UXG has just broken out of a downtrend and is trading at near book value. The others have nice reserves and (mostly) competent management.)
Some debating points presented in this thread that are erroneous (with **my comments to follow):
-That the plan abrogates contract law.
**No such thing, and nobody can or will come here and inform us that they are a party on either side of a renegotiated mortgage contract involved in this plan that feels that their contract rights have been abrogated. Nobody will do that, because it is not the case. No official has claimed, nor has any rational commentator proven, that the plan is anything other than voluntary.
-That the plan is a bailout of either lenders or mortgagees.
**No such thing. Were the enforceable rights of either party to a failing mortgage contract to be so superior to the opposite party’s rights as to invalidate the superior party’s desire to renegotiate, then the superior party would not enter into such renegotiation, and the Constitution and the courts would not allow their rights of refusal to be taken away. Rational observers should already notice that, among 3 classes of failing subprime mortgages, only one of the classes bears the above stated characteristic. In the other 2 classes, either superior enforceable contract rights will rule, or litigation will rule, but one or the other parties would not voluntarily abrogate their rights to contract performance. What do I mean by all of this?… It means you must have both superior rights in contract law and the opposite party must have the capacity to deliver economically. Any lawyer will inform you that a court’s ruling in your favor does not guarantee that you will collect on the judgment. Ahh, so now you understand w-h-y the plan will attract voluntary participation by both parties. It’s because it’s simply economically practical for both parties to renegotiate.
-That the plan is inconsequential in scale.
**Hardly the case. I claim no absolute accuracy, but reports tell us there are approximately 1.25 million or more subprime mortgage contracts subject to foreclosure. Even if just 200,000 of these qualified for renegotiated terms, it represents the likely total population of a rather large city. 200,000 mortgages may represent (at 4 persons or more per mortgage) more than 1 million citizens. It seems to me to be a worthy use of reasonable government attention, especially when no taxpayer funds are to be used.(*)
-That taxpayer funds will be used.
**The plan as demonstrated does not call for the use of taxpayer assistance. Admittedly, even the involvement in planning and administration provided by government is at taxpayer cost (*), but it should be accomplished at mere pennies on the dollar in relationship to the costs that would be absorbed by the economy should this assistance not be given. Even the mortgagees that do not qualify for the freezing of rates for a 5-year period and their lenders as well are still both likely to benefit from rational voluntary participation in workouts, and yet neither party will be forced to abrogate their contract rights. In that sense, this plan may serve as an initial vehicle prior to the establishment of a National Ombudsman in anticipation of a rational voluntary workout of other mortgages, should the problem escalate. I anticipate it will escalate.
-That the plan can’t prevent subsequent economic upheaval.
**I don’t think any of the proponents of the plan in government have claimed any such guarantee. The problem is large and at least now it threatens to bleed into further deterioration in the housing economy.
-That it effectively nationalizes the mortgage industry.
**In effect it’s actually a rational and reasonable plan that attempts to avoid just that. I’m quite sure that Sheila Bair at FDIC had this point of view when she initiated her own recommendations for rational voluntary party workouts of likely failed mortgage contracts. [FDIC = Nationalization] in the worse case, so any actions of government that might contribute to preventing a widening upheaval would in fact work to prevent the very thing that many have complained will occur.
-That lending parties will be intimidated by subtle government threats to “voluntarily” abrogate their contract rights.
**I think that lenders are likely quite able to rationalize the economic benefit to them to improve upon a situation for which they have probably already unofficially (without accountancy) written it down to worse case. However, to the extent that lenders utilized bad business practices, or worse, failed to observe reasonable ethical standards, I can’t say that a little chastisement from government isn’t a good thing. Any outright fraud (there will be some, but not wholescale) will likely be uncovered and the perpetrators will get much worse than just intimidation from government. The same will be true for fraudulent mortgagees. One thing is for sure in national blowups like this one, once congressional committees and state attorneys general get involved… there will be enough heat passed around for everyone to enjoy.
The FED coming to the rescue with lowering the prime rate by 0.75%+ (maybe more) and the Federal government doing political window dressing (freezing subprime loan rates) does little to address the real problems. It seems like too little, too late.
The real problem is people paid too much for a house with a loan they couldn’t afford assuming prices would appreciate 10% a year. The mortgage industry was greedy allowed these risky loans by cleverly diluting the risk to other AAA loans because they assumed prices would appreciate 10% a year. Too bad home prices stopped appreciating.
My problem is FED has tools to control overexpanding economies, not bad debt. The US government is too political to do anything of value. My fear is unlike the saving&loans issue in 1990’s, this condition is global. Does anybody really know how to address a condition that never existed before? The FED is acting like they still have the trump card (defacto world currency), but someday that will change.
**c-o-r-r-e-c-t-i-o-n**
I wrote:
…Rational observers should already notice that, among 3 classes of failing subprime mortgages, only one of the classes bears the above stated characteristic.
—
This was poorly worded and organized. The intent was to illustrate that only one class of subprime mortgage contract presents *both* parties with a rational reason to ignore what might otherwise be ordinary enforceable contract rights. The other two classes may do so, but not necessarily so.
Nice post jombi.
Bill D: What planet do you live on? Not earth apparently.
Humans have been cooperating to survive and prosper since the Stone Age. Why? Because even Cro-Magnons realized that works much better than “every man for himself”.
Think for a minute, if you can, about the root of the word “society”.
Other snippets that resonated with me:
“The real role for government is to step in and re-regulate the financial system. After 30 years, the financial industry has proven that it needs adult supervision at all times. The fantasy that the industry has adequate risk-management procedures in place has been blown up, hopefully forever.
The subprime mess is a textbook example of market failures..”
“While this announcement may provide a temporary pop in the markets, let’s not forget that what are we seeing is the beginning of the end of an asset and credit bubble of unprecedented proportions. History is rife with examples in which credit-based economies are simply unsustainable….A plan for such a massive bailout is not a good sign. It’s a signal that government has finally woken up to the massive problems in our economy and is desperate to provide the appearance of doing something to stem the tide.”
“This ISN’T a failure of interest rate setting but a failure of due diligence brought about by a total lack of regulatory oversight as the hogs bellied up to the troughs. Where’s the new mechanisms required to take the “shadow” finance system into the light as Gross keeps asking.”
jombi,
Rantalogical excellence, my friend!
By the time I finished your post I was kickin’ my dog.
how the heck do you “freeze” mortgage rates ??
How the heck do you interfere with the natural course of economic events where the stupid
risky banks who made all the money and now should be burned are saved while the conservative, intelligent financial institutions that stay away from the subprime
crap get no reward for doing so ??
Why help out the stupid mortgagees that bought on maximum credit while not helping the ones
that were responsible and are not in bankruptcy ??
In the end, it is all about helping out dumb rich folks on wall street that have over speculated in mortgages.
so these are the people that we are helping. this is from newsday on LI, I hope Barry read this. This family can’t pay there electric bill, so they get a loan and buy a $30,000 camper. Come on now
“Marie DeRiso got a loan but lost her husband’s company and a bit of their three children’s happiness along the way. She and plumber husband, Joseph, have been paying $2,300 monthly after refinancing the mortgage on their three-bedroom house in North Babylon, using the $231,000 to write off the old loan and turn the electricity back on by paying a $2,000 Long Island Power Authority bill. Plus, they bought a $20,000 33-foot camper to take to Long Island beaches in the summer, the only sort of away vacation the family can afford”
http://www.newsday.com/business/ny-bzside21207,0,1447297.story?coll=ny_sports_highschool_util
“Honey, junior’s hamster died.”
“Did he feed it?”
“No.”
“Let’s buy him another one, then.”
From The Wall Street Examiner:
“ …says Jim DuBose, president of Colonial Savings, a mortgage lender based in Fort Worth, Texas.
Loan modification, DuBose says, is “pretty painless. We send them a couple of things to sign. It’s not like going through another closing.” He cautions, though, that it doesn’t happen often because Colonial Savings, like most big lenders, sells most of its mortgage loans on the secondary market. In that case, you have to refinance the loan to get a lower rate.
Not every mortgage can be modified — in fact, the majority can’t. Most mortgage lenders don’t hold onto your loan for long. They sell it to Fannie Mae, Freddie Mac or Ginnie Mae. The government-sponsored enterprise, in turn, bundles your mortgage with others to create a mortgage-backed security, which works somewhat like a corporate bond. Investors buy these securities.
You can no more change the interest rate on a securitized mortgage than a farmer can buy back his corn crop after it has been sold, stored in a grain elevator with other farmers’ crops, loaded onto rail cars, and packed into sacks of cattle feed. Because you can’t change the interest rate on a securitized mortgage, you can’t get a modification.”
The winners in this deal will be the lawyers.
Comment appearing in San Francisco Chronicle on December 7, 2007.
“Housing prices are so inflated that very few people who are young can afford homes. By keeping housing prices artificially inflated, this administration has effectively shut out the younger generation from owning homes. From the point of view of a twentysomething, this seems to be the Last Stand to do Evil in Society of the Baby Boomer generation”
After 30 years, the financial industry has proven that it needs adult supervision at all times.
And you’re seriously expecting to find adults in government?
Housing prices are so inflated that very few people who are young can afford homes. By keeping housing prices artificially inflated, this administration has effectively shut out the younger generation from owning homes.
Hmmm! It seems today’s kids get to experience what life was like in pre-1950 America. They get the chance to save up and live like their grandparents did. That’s how their grandparents built a thing called work ethic, savings ethic and character. Too bad they didn’t know how to raise kids
How the heck do you interfere with the natural course of economic events where the stupid
risky banks who made all the money and now should be burned are saved while the conservative, intelligent financial institutions that stay away from the subprime
crap get no reward for doing so ??
….and I always though the opposite of conservative was liberal. Say no more!!
I agree with “This program is nothing more than a desperate attempt to keep the ignorant wage slaves making debt payments on a depreciating asset.” but I would put it differently.
This seems to be a proposal architected by the bankers to keep people paying on loans in the hope they will keep their low interest rate. The emphasis placed on helping only those that have not missed a payment (in the past or future) highly motivates one to continue to make payments. The probability seems low based on the president of Colonial Saving’s comments that many mortgages will actually get modified but the hope is still there. It looks likes a political and financial system best shot that will at best only delay the end result.
Also seems like a lot of rage and frustration is being vented here but our situation may simply be the result of a system that measures value in terms of dollars only and has lost sight of what we should really value. Maybe we are about to be re-calibrated.
The real problem was lenders and others who knew they could package these loans and pass the loan on to others. If the people who made the loan were putting up their money and servicing these loans, the loans would have never been given.
dave- what universal measure of ‘value’ would you prefer? the ‘system’, as you put, needs more than some immeasurable warm fuzzies. does the tax collector accept your good feelings instead of dollars? what ‘recalibration’ do you see ocurring?
Winston,
I plan to defeat the assumptions of your assumed logic (by re: Wall Street Examiner/DuBoise)… soon.
Pay attention. I’ll be baak!… after I work off this nagging fantasy, some whiskey and a recuperative nap.
Eclectic
While your in the logic debunking mode, busy talking up the p-e-r-p-s
Take a stab at this guy while your at it I’m genuinely interested in your opinion
http://globaleconomicanalysis.blogspot.com/2007/12/hope-is-now-sucker-trap.html
I think we’re at odds here on just how w-e-l-l the banking industry has served us.
Eclectic
Your not alone in your thinking. Roubini just yesterday posted a similarly themed approval that WAS ABSOLUTELY FLAMED ON EVERY LEVEL, I’ve never seen so m-u-c-h negativity from his fan club.
Mish breaks this down pretty well in about three different blog posts beside the one I linked.
I guess I’m having trouble seeing the nobility of those that purposefully engineering a credit expansion and crunch, because they’re now pandering to the public in the most deceptive way possible acting like they’re helping the very people they’re chaining to insurmountable debt via a new con. These people need to walk. If the monetary system was not so manipulated I would cringe at this form of cowardess but this is like taking a knive to an M16 mugging. A certain percentage of financially illiterate people were cased for this scam which grew legs and morphed into frenzy an outcome which was known well in advance and used to line the pockets of many well connected people.
Storm,
Roubini should be invited to write an op-ed on the subject for any number of financial pages… Times, Journal, Barron’s, etc. Basically, he explains and supports with stunning clarity the feasibility of the plan’s logical/legal capacity to facilitate work-outs. In that regard, I agree with him completely in broad terms. He rationalizes the need for work-outs, but I don’t know that he has advocated the creation of a National Ombudsman as I have.
Mishkin’s focus seems to be at the micro level, about the specifics of those who will or won’t qualify for resets, and about why the plan will or won’t succeed even for the ones who do qualify for resets.
This has not been the focus of my own writing. My focus has been on the absolute necessity for the installation of a national voluntary work-out mechanism to be run by an ombudsman with non-judicial authority to make unilateral arbitration decisions based on forensic examinations of original contract terms. In other words, the ombudsman would be charged with the responsibility to in all ways possible attempt to conserve the interests of both parties to mortgage contracts without the burdensome expense and delay of foreclosure, eviction and BK.
—
Winston,
I’ll now respond to your last overture:
A stated erroneous objection to the plan:
-That the plan would be unable to reasonably access widely dispersed fractional holders of mortgage debt in order to facilitate the altering of contract terms specifically related to their particular fractional participation.
**Actually, those who view this supposed stumbling block as evidence that the plan can’t succeed fail to observe one of the only fortuitous aspects of the pooled subprime mortgage dilemma, that being that fractional debt holders are a-l-r-e-a-d-y assembled in conduits, whether as bondholders, tranch participants, unit holders, or in other ways, but in all ways as fractional participants.
As such, these participants are united with all other fractional debt holders in an institutional form, not as individuals. Consequently, the legal entity of their organization serves much as an investment trust or real estate trust might. It would have been assembled with some authority that binds it as responsible to the fractional holders, such as an offering agreement, trust agreement, bond indenture agreement, or some other reasonable documentation of purpose, procedures and rights.
What this means is that a mortgage originator, one who subsequently has sold the debt to fractional owners (investors) and may now only earn servicing fees for collecting mortgage payments, and who now exclaims the impossibility of altering terms, is stating an opinion of no consequence. The originator is not a party to the contract, but merely a servicing agent, much the same as a stock transfer agent for publicly traded shares, or the general partner of a limited partnership, or the controlling owner or authority of a residential condominium.
Thus, the fractional owners can be easily located and their opinions and/or decisions for altering contract terms assembled by proxy. I’m sure that in most cases indenture agreements likely provide for passive representation of fractional debt holders who are unavailable to represent themselves or unresponsive for reasons of their own.
Roubini’s approach addresses the fact that any reasonable attempt is a step in the right direction. My take; this goes to my youth and the self serving repentive thief analogy see original post. I get the non-issue of the contract law especially given the narrow window for LTV on qualifying mortgages and consenting parties, but it doesn’t address how we have arrived here. A topic I believe you actually had much to comment about “disintermediation” where are the analysis of what regs need to be implemented or reinstated such as maybe Glass-Steagal to avert a reoccurrence, I mean it’s obvious in aggregate how quickly we forget. The rulers are just trying to appease the mobs by wheeling out wagons of rancid fruit.
You mention Mishkin but the context of your statement seems appropriate, I meant Mike Shedlock @ http://globaleconomicanalysis.blogspot.com/
Much of what he writes seems to detail the path to insolvency that is unfolding in the financial arena.
Storm,
I understood it to be Mish and reviewed and commented about your correct link (not Mishkin), my bad.
Otherwise, you have a punitive attitude about this whole matter and it won’t help you or anybody else that’s tuned in to my writing. I’m a problem solver… I look at today and go forward attempting to repair, conserve or improve things. I don’t look back, because all those that were irresponsible that got us here are now no more or less than our shipmates, adrift with us on a ship with no rudder. The recent coordinated effort of government is simply a signal that we may have the opportunity to put a rudder on it before it crashes into the rocks.
Yes indeed I’ve written extensively here my opinions about intermediation as I’ve watched this situation unfold, and if you’ll remember, I’ve reviewed and critiqued several of Greenspan’s and Bernanke’s speeches or prepared remarks on the subject.
Too, I’ve long criticized m-o-n-e-t-a-r-i-s-m (the thing that helped us get here), pro-forma EBITDA accountancy (the madness aided and abetted by a hocus pocus supply-side economic mindset), and I’ve explained why optimism through “willfulness for its own sake” (optimism without a valence modifier) is a form of philosophical blindness*… and I think I’ll stand on all those pronouncements as essentially being proven out.
*[note – pessimism via willfulness for its own sake is just as blind]
I’ve expressed my opinion that charging the FOMC with a dual responsibility for a)- integrity of the currency, while also charging them to b)- facilitate full employment (stability of prices and GDP output are generally a misty admixed ether of the two) is to give them an impossibly conflicted task.
Finally, the mere fact that the vast majority of Norte Americanos (I’m WASP) have violently objected to this plan, generally by offering only Bombastic Hyperbole as inconsequential reasons for the objection – as if party A and party B actually give a shit what disinterested parties think if they want to renegoiate terms, forgive principal or modify a settlement between themselves – is not a comforting or reassuring prospect overall.
Our country is too full of thumbs-up or thumbs-down gladiator spectators, especially when most of them can’t understand that when they too quickly give the reactionary thumbs-down to some motor trucker… that they might just be stickin’ a pitchfork up their own asses.
Eclectic,
This plan is nothing more than an attempt to increase the speed of operations for that which has been occuring already.
My biggest complaint is that it was politicized into a sound byte in an attempt to alter p-e-r-c-e-p-t-i-o-n-s.
The plan is restricted those those homeowners with 3% or less equity – the ones whose foreclusure will cause the most loss for the holders of the debt.
To spin it as an attempt to keep Americans in their homes is disinginuous – it is a plan to minimize losses for holders of lousy debt. If you believe this plan would be installed if home values were not in decline, you are kidding yourself.
It is not the bad debt but the falling asset values backing that debt that has everyone with their panties in bunch.
This plan is targeting the very group with the least “skin in the game”, those who would be most likely to “walk” on a rate reset, leaving the lender no option but to take possession of a declining asset.
So let’s not kid ourselves, here – this is an attempt to alleviate the cost to lenders; it has nothing whatsoever to do with helping families.
Winston,
While I respect your opinion, your last comment was as though you’d been a financial journalist coming back to file a report before your deadline.
However, it was also as if your dateline had been this:
-Nnum Notsniw, Tenalp Yliad Orrazib
Eclectic,
One more comment, from a site named MoneyNews.com
Quote:
“The Standard & Poor’s Case-Shiller National Home Price Index last month showed prices slid 4.5 percent in the third quarter from a year earlier.
Declining home prices have triggered a crisis in mortgage lending by revealing weaknesses across hundreds of thousands of loans made through the U.S. housing boom. Loans made to risky, subprime borrowers and those that required no equity from the borrower have led to soaring defaults, leading lawmakers and the Bush administration to pursue various efforts to stall resulting foreclosures.
A plan supported by Treasury Secretary Henry Paulson that aims to freeze rates on many subprime loans will do little to slow the housing downturn, analysts said.
‘Many government and policy-makers feel this is a subprime problem, which is completely wrong,’ said Paul Miller, an analyst at Friedman Billings Ramsey, in a research note. ‘This is a high loan-to-value and overvalued housing problem!’
End Quote.
While I value and generally agree with most of your conclusions, I also believe you are limiting yourself by reliance on a fix of only “current problems”.
Looking backwards and beneath the problem is not about finger pointing or assigning of blame – it is about determing underlying causation to eliminate a future repetition. Had we not looked for underlying causes, polio and small pox would still be rampant; the only long-lasting solution requires treatment of the underlying causation and not on the symptoms of the illness.
This problem is simple – overextension of loans-to-value. Keeping someone in a poor loan, servicing debt on a declining asset, does not fix that problem.
There are only two fixes: 1) higher wages to compensate for the increase in housing costs, or 2) lowered costs of housing.
The root cause of this conundrum was expansive credit creation; the only way going forward to alleviate the continuation of this disease is to eliminate the cause.
The amount of pain felt is in direct proportion to the distance from mean allowed to run – the greatest credit bubble of all time does not bode well for a soft, or painless, landing.
Eclectic,
My formative years brought me the assassination of John and Robert Kennedy, the Vietnam War, Kent State and the ’68 Democratic National Convention, along with Nixon and Watergate.
We condemn Tianamon square; we ignore Kent State.
We pardon kings; we jail the lower class.
Likewise, my cynisim has no bounds.
More on the new mortgage plan
While the plan may not be as big a deal as we thought, the problem still is.
Eclectic, I always respect and research your take as no one can fully understand a situation without exploring both sides, I just see it differently. I believe the system is working as designed and rules have been removed to facilitate the transfer.
Winston, it would appear we agree that there is no real concerted effort occuring to make sure this c-a-n n-o-t re-occur the current “fix” is BS – with no offerings any where as to real legislation. Why would anyone think there would be, this is the t-o-o-l of wealth redistribution It is quite clear as I and many others have been saying for months that we were headed where we are now. It can not be remedied a cleansing deflationary recession needs to ensue. It is the nature of the Debt-Based Monetary Beast. It must constantly be fed or it collapses on itself. Mises and the Austrians have been preaching this for years. Systemically credit absorbtion has breached the ability to be serviced only default can remedy this.
Winston,
There’s nothing wrong with healthy cynicism. Only you can know if yours is healthy or not.
I’m puzzled that you could assume that anything, ever, that I’ve written on TBP could lead you to believe I’m a Pollyanna regarding the eventual result of this financial dilemma.
What I’ve done with my thinking and writing on the need for a national ombudsman, and with my support for this recent effort by government, is to in effect suggest that storm pits be dug now so that when the tornado comes, we’ll have some modicum of capacity to preserve the financial system.
What is the plan so far and what is its scope?…
It’s only one tiny pit dug in one tiny town, when to my mind, later, thousands upon thousands will be needed. But, Winston… it IS a pit, if only the first one, and if only a pittance. And both the pit dweller and his partner, his compatriot in the recent debauch, will share the pit, and both have already begun to lose and they’ll lose more, much more. They’ll stare into each others eyes and watch it all unfold, until some final passing of the storm, when they can emerge to roll the dice and find out what’s left, if anything.
I’ve given my own somewhat atypical (for me) brand of enthusiastic and ex-cynicistic support to government for the plan because it has the SEEDS in it of that tangible thing (the national workout ombudsman mechanism) that I expect MUST come. I’m thinking it needs a little watering, some additional husbandry, and the little plan(t) might get enough attention to be seen for what it will become… must become.
Lately the sky has darkened and the roiling rain has begun to fall, but it’s not the real storm. That one’s still looming on our horizon and only the discerning can see it. Everyone else is wrapped up in willful optimism, enjoying the naysaying shrugs they can dismiss the few prophets that are sent to them with. There won’t be enough storm pit to go around.
Lastly, that little plan(t) that I’m referring to… if it does become critical that it mature into something more substantial (to my mind, a near certainty), it’s going to need a lot more than 50 from Dr. Benber N. Anke and his happy crew of ex-Machinators, and if he doesn’t understand that, he may understand it soon, after the passing of what might then seem to have been merely a metaphorical fortnight, after which he’ll have to once again apologize to Milton and Anna for, indeed, letting it happen again.
I’ll end with a funny… Here’s the possible outcome if the Fed doesn’t understand that what’s needed is a dramatic action, forceful and sweeping in scope, not some measly academic foreplay (although I do enjoy the intellectual mumblety peg) about whether to lay down 25 or 50 before the next toss of the kuh-nife:
http://www.youtube.com/watch?v=8x1yK9MFXQ0
…and then the rush for the pits:
http://www.youtube.com/watch?v=GqfSub088jE&feature=related
http://en.wikipedia.org/wiki/Mumblety_peg
Eclectic,
I value your wit, intelligence, and wisdom, and I hope you do not believe I rate you a Polyanna – not at all, and if my message was poorly worded to suggest such a thing I apoligize and wish to assure you that is not the case.
It’s difficult for me to determine exactly where we differ – maybe little at all. I, like you, find no evil intent simply in fractional reserve banking. Nor do I have an inherent bias againt fiat currency.
Where I have the problem is debt-based fiat currency used to finance fractional reserve banking, so in essence there is nothing but debt, rather than real savings, as reserves. Fractional reserve should be based on extrapolating from a positive number – when all money is debt all you accomplish with fractional reserved banking is an extension of that debt.
I could be wrong on this, but it seems the only real difference is that your suggestions accomodate actions within the present system, where I conclude that the present system IS the problem, and hence acting within it is no more than patchwork to a mangled quilt.
In this I am closer to Sormrunner’s position – the only true solution is a deflationary cleansing of exagerated debt.
Debt cannot indefinately sustain more debt – at some point Zero Hour is attained.
Eclectic,
I had to dig around for this and cannot copy and paste it so have to recreate the findings – but it shows my point that it is the financial s-y-s-t-e-m itself that is flawed, and hence no fix within that system can cure the ills.
It was a chart titled “Diminishing Returns from Debt-Financing by Decade”.
The salient numbers are these:
GDP/Debt
49-59: 0.74
59-69: 0.66
69-79: 0.59
79-89: 0.34
89-99: 0.32
99-07* 0.20
Further, for 99-07.
Change in GDP in billions: 2455.2
Change in Debt in billions: 21263.2
*Most recent available data.
You might call this the “Law of Diminishing Returns from Increases in Debt”.
At some point Zero Hour is reached, when all available productivity is consumed by service of the debt. As is plainly seen, a continuation of reliance on debt expansion as a means of GDP growth is simply unsustainable.
Why worry about fixing the flat tire if there is no engine in the car?
Winston,
Indeed there’s much about the two of us that we agree about. You’ve summarized one element however that I will address (quoting you):
“I, like you, find no evil intent simply in fractional reserve banking. Nor do I have an inherent bias againt fiat currency.” end quote.
—
I believe that is true, but readers of both you and I might conclude it is not true for you.
I’ve just come to the practical realization that the system, though flawed, will not change because, unfortunately, even with its flaws it’s the best system for an urbanized labor-specialized society.
On that point I’ll take all who want to debate me.
Eclectic,
Yours sounds the point of view of the pragmatist; I, however, believe in the power of jousting with windmills.
For the record I value the insights of you both. It is in the writings of each I have found enough substance to do my own due diligence so to speak to formulate my own opinions. Eclectic you are right I see only problems no real solutions for Fractional Reserve Banking as the profits are always used to subvert legislation. State issue Chartalist or Neo-chartalist has very similiar problems. I think you are in error regarding Ron Paul however if I may wanting to take us regressive. Paul wants to monetize gold in the sense of removing the tax on dollar denominated appreciation creating a way to a competative store of value a practical mechanism for storage which could be E-Gold. Parallel currency access would force fiscal restraint in extending credit and its propensity to inflate the fiat.
Except of conversation from another sagely individual his bent is deeply religious but ideas relevent none the less. Hopefully you don’t mind that I pasted some of your monetary theory for him to comment on in this thread.
http://webofdebt.wordpress.com/feedback/
David W.A. Robertson, Inverness Says:
stormrunner:
I have read your discussion with Eclectic. His ideas about money, wealth, power, trade etc. bear a strong resemblance to my own although expressed in different language. However, I do agree with you about conscious manipulation, which has increased exponentially as the technology to enable it has come into existence. Perhaps the difference, between you and me, is that I see all of us as being willing co-conspirators, while you see merely the plutocrats as being the betes noires……………
Re: Eclectic’s hypothesis:
First, I quite enjoyed it. It is very personal expression yet clearly expounded and certainly food for thought.
As to your question as to whether he excludes credit or as you call it the “fractional usury element”, yes he does. He may imply its existence however, without referring to it as such, in the following statement:
“It is possibly useful to observe that perceived liquidity is an ultra-liquid resource and deferred liquidity is illiquid, although the individual does not possess any truly illiquid assets because he does not conceptualize them in this way. ”
I would not agree entirely with that since I do believe many people think of their pensions, homes, term deposits, etc. as illiquid. However, they are encouraged in today’s society to borrow against them so many are no doubt seeing them as sources of liquidity and this is what contributes to inflation. This is connected, as you aver, to the issuance and promotion of of debt by the money masters for their own purposes.
My own view on this is that “perceived liquidity” is what I would call one’s feeling of financial well being, security etc. These have been artificially inflated by full employment, the property bubble, commodities and financial assets, caused largely by easy credit issued by our friendly local bankers. People are then given higher credit limits, see themselves as wealthy, and use credit unwisely. Since credit is “easy money” they place less value on it than they would if they had to work hard for it. (The hangover comes after the party). Sellers of commodities, properties, assets, goods and services find they are able to ask higher and higher prices without too much buyer resistance. Inflation may be CAUSED by increasing the money supply, i.e. the debt in circulation, but its effects are loss of buyer discipline, delusional consumer behaviour, higher prices on everything and on the other side of the same coin, less purchasing power of the dollar in your wallet. This is the monetary corollary to the sexual revolution and the exponential increase in promiscuity. The economy and personal morality, as I have observed, are intimately connected.
Eclectic has raised another interesting point that may have implications for the future when he says:
“(III) Perceived liquidity is at the steady state equal to nominal liquidity multiplied times a hypothetical terminal low coefficient of perceived liquidity that is always greater than 1 (one).
(V) Upon an upset to the steady state the coefficient of perceived liquidity will increase to some higher but not unlimited value, and the increase will be proportional to the severity and speed of the upset.
(VI) An increased coefficient of perceived liquidity can not resume its former steady state value until economic conditions resume the steady state.”
This is Eclectic’s way of saying that in the event of an economic crisis the tendency of investors is to “get liquid”, sell everything that isn’t nailed down and put everything into a safe haven liquid asset. This would lead to a blow off hyperinflation in liquid “safe assets” accompanied by a deflation in other less liquid assets. Eclectic’s “steady state” perceived liquidity will only return when the economic crisis is past, which is probably self evident.
The first “safe assets” are large multinational companies and government bills since the latter are more liquid and less volatile in price than notes and bonds. This will initially depress short term rates on T-Bills and increase long term rates on T-Notes and T-Bonds, which is already happening. Commercial paper will have few friends. This will put additional pressure on the property market including commercial real estate. However T-Bills will not keep up with inflation after taxes as interest rates fall. This will lead to a migration into commodities which are in a general bull market at the moment.
Eventually of course with all this disequilibrium the entire economy will enter a recession, or depression, stock markets will be abandoned, leading to deflation in all markets, except non-economic commodities. Of course being an old bear I may be somewhat biased in that last statement.
David’s opinion regarding Pauls credentials
Although I am in the UK I hope Americans recognise the treasure they have in this man and vote him into the Presidency.
“In 1982, Ron Paul served on the U.S. Gold Commission to evaluate the role of gold in the monetary system. In fact, the Commission was his idea. It was carrying forth a promise made in the Republican platform.
Ron couldn’t pick the members, so from the beginning, the deck was stacked. The majority was dominated by monetarists, who saw gold as too scarce and paper as just fine. Ron Paul’s team was ready, however, with this marvelous minority report.
Rarely has a dissent on a government commission done so much good!
The result was The Case for Gold, and it was the greatest result of the commission. It covers the history of gold in the United States, explains that its breakdown was caused by governments, and explains the merit of having sound money: prices reflect market realities, government stays in check, and the people retain their freedom.
The scholarship and rigor impressed even the critics of the minority. Ron and Lewis Lehrman worked with a team of economists that included Murray Rothbard, so it is hardly suprising that such a book would result.
It still holds up as an excellent blueprint for moving beyond paper money and into the age of sound money. >>In particular, Ron favors complete monetary freedom to use any commodity as money, to make contracts in any money, and an end to the monopolization and printing power of the Federal Reserve.<<
Thanks Storm, I enjoyed reading the critique you referenced.
Eclectic you’ll not likiely see this as this thread is on its last legs,
Your quite welcome, there are, as you have implied boundaries between healthy skepticism and paranoia.
For the first time in a hundred years (I Believe) a real debate between the ideologies of the Globalists and the Nationalists is occurring, the intricacies of which are outside the scope of the general voting populations willingness to educate themselves. This is not conspiracy as I have previously and clearly stated and now Ron Paul is publicly stating to counter those that would have us believe he is a crack pot. There are those that believe that the general public lacking this knowledge have no business in governance though popular vote, this has been stated at the Bilderburger conferences. The Debt-Based Fiat is their tool always has been, paradox is we need them there is no discounting this, they employ us but Democracy is the check without which we get corporate-fascism. Paul’s competing currency initiative is the only practical way to restore balance short of systemic failure and a rebuild.
Of course it will be 20 or more years before the Globalist agenda on this continent experiences the success seen in the EU in the mean time we get ….it could never happen here!!!!
Although I know I’ve made my “fair share” off of good, sound investments over the past 6 years, somehow I still say “tsk, tsk” to the way it was handled by the decision makers. The problem with the mortgage “slump” really just magnified the problem we have in America today of people biting off more that they can chew. Everybody involved just wanted more, more, more.