The Bankers’ Bailout

I mentioned this yesterday (Inflating Our Way Into Recession), but I thought it was an important enough piece to highlight on its own.

This is an all too vivid an account of what is likely to be an ongoing and expensive venture into irresponsible lending and speculation — all that the taxpayer’s expense.

"Since the onset of the subprime crisis last summer, the White House has repeatedly rejected the notion of a government bailout, either for homeowners facing foreclosure or for the banks and mortgage companies that made the now souring loans. "There’s no bailout with government money, none whatsoever," Treasury Secretary Hank Paulson emphasized. But even as the administration has stuck to its laissez-faire stance in public, behind the scenes a covert bailout has been under way, with a number of public and quasi-public agencies quietly dispensing vast sums to financial institutions saddled with worthless or near worthless mortgage securities. All the while, homeowners at the heart of the problem have been left largely to their own woes. The rescue operation brings to mind John Kenneth Galbraith’s dictum that in the United States, the only respectable form of socialism is socialism for the rich . . .

Then there is the Federal Home Loan Bank system, an obscure institution that President Herbert Hoover set up in 1932 to stimulate mortgage lending. The F.H.L.B., actually 12 government-chartered but privately owned regional banks, exploits its semiofficial status to raise money cheaply in the bond market and lends the proceeds to its membership, including most of the nation’s big banks and investment firms. Since last summer, the F.H.L.B. has been extending low-cost credit at an unprecedented rate—$184 billion in the third quarter alone. Recipients include Citigroup, which owed the F.H.L.B. $98.7 billion at the end of September; Countrywide Financial, which owed $51.1 billion; and Washington Mutual, owing $43.7 billion . . .

As a result of all this government-sanctioned activity, total mortgage lending nationwide actually rose in the third quarter of 2007, according to Richard Iley, an economist at BNP Paribas. However, as he pointed out in a recent research note, simply increasing the volume of business was probably not the only goal. "It is no exaggeration to say that the mortgage market was effectively nationalized" in the third quarter, Iley wrote. "The F.H.L.B. acted as a forgiving lender of the last resort, providing the liquidity to sustain mortgage production while Fannie and Freddie acted as risk intermediaries of last resort with record purchases of mortgages."

Viva laissez faire Capitalism Socialism! 


The Bankers’ Bailout
John Cassidy
Portfolio, March 2008 Issue

Category: Credit, Derivatives, Federal Reserve, Taxes and Policy

A Conversation with Martin Feldstein

Category: Economy

Open Thread: The Return of Stagflation?

Category: Economy, Federal Reserve, Inflation

Tech Investor News

Interesting new site coming from Frank Cioffi, the PR and media relations guy, and former tv news journalist: Tech Investor News.

His first two outings are for Apple (May 2007) and Google was launched today. The plan is to roll this out for another 20 tech names over the next 18 months.


Read More

Category: Financial Press, Web/Tech

Feldstein: Holy S*&#!

Category: Credit, Economy, Federal Reserve, Inflation, Real Estate

Consumer Prices

Category: Data Analysis, Inflation

Inflating Our Way Into Recession

Category: Commodities, Consumer Spending, Economy, Energy, Federal Reserve, Inflation

Blog Spotlight: naked capitalism

Its been quite a while since our last edition of Blog Spotlight: Tonite, I am pleased to present Yves Smith’s naked capitalism.

Yves is a refugee from a big Wall Street iBank, and has put serious time into a well known consulting firm. I have been particularly impressed with Yves coverage of the monoline insurers (Ambac (ABK), MBIA, FGIC). As you will see, her thoughtful post below reflects both his sharp wit, worldly banking experience and insight into this sector.

This is part of our ongoing short list of excellent but somewhat overlooked
blogs that deserves a greater audience. I hope you find it as illuminating as I have . . .


Monoline Death Watch: Is There Really a Plan Here?

Posted by Yves Smith at 8:55 AM, Feb 19, 2008

Ever since Eliot Spitzer threatened the troubled monoline insurers
that he’d break them up, everyone has acted as if that’s a viable

But this talk of a split reminds me of movies about Hollywood, where someone buttonholes a producer with his pet idea:

it’s like Flashdance, except you reverse it: the girl is a Hispanic
ballerina who started stripping to pay her student loans…."

Like the film proposal, the break up notion is still at the high
concept stage, little more than, "let’s separate the muni operations
from the rest."

And while admittedly Ambac has had only the long weekend to work on its plan, the update as of Monday evening via the Wall Street Journal suggested that the group is flailing around.

Read More

Category: Blog Spotlight

Media Appearance: Closing Bell with Maria Bartiromo (2/19)

Category: Media

Quote of the Day: Hard to Ignore Soaring Food Prices

Category: Commodities, Consumer Spending, Economy, Federal Reserve, Inflation