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If they wanted to, they could have totally kicked ass

This is rich on any number of levels:

The White House is signaling today that it’s going to back off and let the latest housing bill through, even though it objects to the part where American taxpayers actually see benefits from their taxes instead of just the shareholders:

White House drops opposition to housing bill – Mortgage Mess- msnbc.com

Under the bill, the government would help struggling homeowners get new, cheaper loans and would be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion…

{{snip}}

…Bush had objected to the $3.9 billion provision in the measure, saying that it was aimed at helping bankers and lenders, not homeowners who are in trouble.

Ah, so the one part of the bill aimed at getting cheaper loans for people struggling with unaffordable ARM mortgage payments is the part that’s aimed at helping bankers, eh?  Then what about this passage – which goes entirely without comment or illumination in the MSNBC article:

Mortgage bill, cont’d – msnbc.com

It hands the Treasury Department the power to extend the government-sponsored mortgage companies an unlimited line of credit and buy an unspecified amount of their stock, if necessary, to prop up Fannie Mae and Freddie Mac, two companies chartered by Congress.

As Dean Baker points out, shoring up Fannie and Freddie’s bonds might be a good idea to stave off further economic disaster – bonds typically constitute the bedrock of a lending company’s financial insurance – but there’s no macro-economic reason that the government should have to buy up stock in the company.  Except, that is, to minimize the loss of the investor class.  So, who is helping whom, here?  What is the direct benefit of this stock purchase plan for the average consumer?

But Dana Perino, who is already getting beaten up about Barack’s Excellent Adventure in the Mid-East, has chose to go the “we could have if we wanted to,” route in defending the Administration’s capitulation on this “wasteful” spending provision.  That, and the “Hard-working martyr” route:

Mortgage bill, cont’d – msnbc.com

White House press secretary Dana Perino announced Bush’s switch in an earlier telephone conference call with reporters. “We believe this is not the time for a prolonged veto fight but we are confident the president would prevail in one,” she said…

{{snippage}}

…She said she expected that the $3.9 billion provision would be included in the final legislation. “With Congress scheduled soon for yet another recess,” she said, “the risk of not having a bill until at best the middle of September — if they even were act then — is not a risk worth taking in the current environment.”

Darn that stupid, slow Congress!  Things would be better if they worked quicker.  As a wise man once stated, “If this were a dictatorship, it’d be a heck of a lot easier, just so long as I’m the dictator.”

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$25bn for Fanny and Freddie. What About the Rest of Us?

The CBO is announcing today that bailing out the two super-giants of the mortgage industry, Fannie Mae and Freddie Mac, will cost $25bn dollars.  Given the pencant for under-bidding such things, we can probably expect this number to double before the year’s out.  So, more like $50 billion dollars to bail out these companies.

In the grand scheme of things, $50 billion isn’t really a lot of money, when compared to the impact that a failing mortgage industry would have.  It’s especially not very big in comparison to the spiralling cost of the Iraq War.  And to the extent that these two organizations are only semi-private enterprises, having been formed by – and from time to time, buttressed – by the federal government, it’s not the biggest handout we’ve seen or are likely to see in the coming years.

But what could that $50 billion dollars have done for American home owners struggling with this crunch?  How many people’s homes could have been saved with that money?  Had the government acted sooner, instead of chiding the “speculators,” handing this money over to Fannie and Freddie wouldn’t have even been necessary.

But of course, it’s not about the mortgages, it’s about the mortgage industry.

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It’s a Rig

The NYT turns in a great piece on the growing disconnect between those who borrow and those who lend.  In the midst of the ARM mortgage crisis, as family after family succumbs to the convulsions in the marketplace and as one bank and investment firm after another gets a free bailout from the same taxpayers, the difference couldn’t be more stark:

Fair Game – Borrowers and Bankers – A Great Divide – NYTimes.com

The message in this disconnect couldn’t be clearer. Borrowers should shoulder the consequences of signing loan documents they didn’t understand, but with punishing terms that quickly made the loans unaffordable. But for executives and directors of the big companies who financed these loans, who grew wealthy while the getting was good, the taxpayer is coming to the rescue.

To be sure, bailouts are becoming increasingly necessary in our highly leveraged, interconnected financial world. One obvious reason that huge companies are not allowed to fail is that so many people are hurt by such debacles. If a family files for bankruptcy or loses a home, the pain still hurts, but its emotional and financial ripples are confined.

And of course, that’s the game: we can’t survive without the banks, so for our own well-being, we need to work against our immediate interest.  It’s all a rig.

But even more important to the rigged game is the notion of “free markets,” which as the article points out, are only expected to be free to the extent that they’re doing well.  Once the shit hits the fan, well, then the government is expected to come in and regulate lest the economy collapse.  The most important point in the article is here:

Fair Game, Cont’d:

HERE is a question: Might not the routs, which inevitably follow the manias, be less painful if things were not allowed to get wild and crazy on the upside? Might not the American people be better off with regulators who curb market enthusiasm — whether in the form of errant lending or voracious, ill-considered deal making — when it reaches manic levels, to protect against the free fall, and the bailouts, that ensue?

No, no, no — perish the thought, especially when the taxpayer is there to pick up the bill.

And that, my friends, is the point.  The supposedly liberal position of regulating trade is not about us wanting to control and tax every little thing.  It’s about the fact that our government is a public square in which those of us not running large corporations get a say in how our country is run.  The banks will be just fine, no matter what; we know that.  The government is supposed to be there to make sure the rest of us don’t get left holding the bag.

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Subprime Timeline

Interesting. . .

The Joint Economic Committee of the House of Representatives has a couple of PDF timelines covering the subprime crisis since 2006.  Obviously, it’s not a complete document, but probably good archival data to have around, nonetheless.

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Subprime: No Consequences for Rochester

It took me a few days to find it, but I just got done reading the D&C’s latest installment of misinformation on the Subprime/ARM Mortgage crisis brewing throughout our country.  Now, it hurts to think.  I know it’s easy to criticize the media for incomplete reporting, but in this case, the Pollyanna tone of the piece and the fundamental lack of depth are just positively astounding.  Take, for example, the dismissive tone that begins the piece:

A casual observer could be forgiven for thinking the U.S. financial industry is on the brink of collapse.

Indeed.  And I’m sure a professional observer could be equally forgiven.  But according to the D&C, that’s all just silly pussy talk:

Is it cash-under-the-mattress time for those of us who don’t know a derivative from a debenture?

No.

Take a deep breath, sit back and listen to Dan Burns, president of the Rochester division of M&T Bank, explain that our local banks — the Canandaigua Nationals, the First Niagaras, the M&Ts and others — are run conservatively and are, in fact, quite healthy.

Yes, now that the irresponsible practices of banks and lending institutions have brought our economy to unbelievable pains and left thousands homeless, let’s all sit right back, take a big hit from the hukka and listen to yet another banker tell us why we needn’t worry our pretty little heads about it.  Sleep deep.  After all, these banks are run conservatively, and conservative equals good.

It is a consistent narrative within the larger D&C world view that Rochester is always exceptional in some way or the other, especially in cases of crisis.  There seems to be some “Big Daddy” complex that compels the editorial board to assure us all that, no matter what the situation, Rochester will be OK because we’re just a far away, sleepy conservative town that nobody would ever want to hurt.  We don’t need to worry about the wars in Iraq or Afghanistan; we don’t need to worry about terrorism; we don’t need to worry about the mortgage crisis.  Sleep deep.  These too shall pass.

And I would prefer not to be seen as the reactionary counterpart, but if seventy percent of the mortgages in America are being underwritten by Fannie Mae and Freddie Mac – yes, including some of those issued by Canandaigua National – then whether or not East Bumblefuck National Bank ever had the money to even play the subprime game, much less suffer the consequences directly, matters very little.  To the extent that this article is about local banks, it is great to know that they’ve done OK despite the problems so far.  But when the article is address to those of us who “don’t know a derivative from a debenture,” and sets a “don’t worry” tone – consistent with a common D&C theme- there is the air of irresponsibility.

Now is definitely the time to worry; now is definitely time to check the fine-print on your mortgage; now is definitely the time when you should be searching Google News for your mortgage lender’s name; now is the time to pay attention to the news about the mortgage problems and educate yourself to the extent you can.  Now is not the time to panic.  The problems of Fannie Mae and Freddie Mac not only have the potential to directly affect those sleepy burgs that choose not to pay attention, but are in fact indicative of market forces that will directly affect our lives.

Fannie Mae and Freddie Mac certainly have their problems as institutions.  Nevertheless, the sudden near-collapse of these two lending agencies is not simply bad timing: in an effort to bail out banks and mortgage holders struggling with the ARM interest rate snap-back that’s caused this whole subprime crisis, the government encouraged people to transfer to Fannie- and Freddie-backed mortgages.  Now, those institutions are completely overwhelmed and there’s more to come.  Here in Rochester, according to one recent report which I discussed a while back (note: Empire Justice’s website appears to be down at the moment, so you can’t actually see the report, which sux), forty four percent of subprime mortgages in Monroe County are in trouble.  Even if those mortgages aren’t through local banks, the problem they present is still quite local.

And oh, by the way?  Hiding cash under your mattress doesn’t matter much if the financial institutions that back that currency collapse.  No, now may not be the time to hide cash under your bed, but if we’re unlucky, it may be time to start ripping copper wire out of your house and protecting your gold fillings.

So, D&C: quit patronizing us and do your freakin’ job.  Tell us what’s happening, ask tough questions of local institutions.  Do I have to be all on my own reporting the news around here?

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Home Sales in the Toilet, Auto Sales Up

I’d call this a sign of the times. The Rochester Business Journal is reporting that home sales in Monroe County plummeted 11 percent this month, while automobile sales continued to climb. Unfortunately, the RBJ did not report on what types of cars are being sold. Based on other reports about plummeting SUV sales, I suspect that the answer is “a whole mess of Priuses.”

Rochester Business Journal:

Sales of existing homes in May dropped 11 percent compared with a year ago, the Greater Rochester Association of Realtors Inc. reported Friday. Though May closings, at 928, were up 10.7 percent from April, which posted 838 closings.

Rochester Business Journal:

Sales of new vehicles in Monroe County continued to increase last month, while used-vehicle sales fell in May, the Rochester Automobile Dealers’ Association Inc. reported.

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McCain’s Subprime Troubles

Here’s a story I’ve been asleep at the switch on. One of John McCain’s chief economic advisers is none other than former Senator Phil Gramm. Phil Gramm was the father of the modern bank deregulation era that led to the subprime mortgage crisis. And more than that, he’s a lobbyist for UBS, one of the largest transnational corporations embroiled in the subprime mess:

Talking Points Memo | Great Company He Keeps

On the McCain/Gramm/UBS front (noted in yesterday evenings posts), it seems that not only is Sen. McCain’s top economics advisor, fmr Sen. Gramm, lobby and work for UBS, but according to today’s Financial Times the company is advising members of its private banking team not to step foot in the United States in order to avoid indictment.

The original story from MSNBC’s Countdown is here for your entertainment. Gramm was a tireless lobbyist against just about any reform measures or relief measures the Congress wanted to pass in the wake of the economic disaster he was largely responsible for. So now we know why John McCain’s economic policy where the subprime situation is concerned was, “you’re on your own, losers.”

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RBJ: Topsy Turvy Rochester Real Estate, but OK

Rochester Business Journal is today reporting that, while it’s been a topsy-turvy beginning of the year, the Rochester real estate market is in good shape compared to where it was last year at this time. Home prices have remained steady since last year, with a slight .1% decrease. Nothing on the order of what’s happening elsewhere, at least not on average.

Among the many things that drives home prices is – like all markets – the availability of homes. If there’s a lot on the market, the market gets depressed, which is part of the vicious cycle affecting many parts of the country where homes lost value and homeowners foreclosed, causing still more valuation loss. Take a look out how the numbers stack up for Rochester:

Rochester Business Journal

The inventory of homes listed for sale, at 1,940, decreased by 9.1 percent from 2,134 listed a year ago, and was up 6.9 percent from 1,815 in February.

In other words, we’re doing significantly better selling homes this year than we did last year, but there appears to have been a significant jump in listings over the last few months. From March of 2007 to February 2008, we had almost 15% less homes available in Rochester, but there has been a spike.

To what extent this is reflective of a seasonal ebb and flow of the marketplace, I cannot say. I am looking for answers. Still it’s a big jump, and I wonder if the problem of the ARM mortgage crisis is coming home to Rochester in earnest.

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Subprime: Is the Cure Worse Than the Disease?

Leave it to the Bush Administration to find a way to make the Subprime/ARM Mortgage mess an excuse for even less regulation. I’ve been reading up a little bit on some of the proposed plans to reshape financial markets in the wake of the housing crisis and to some extent, the cure the Bushies are proposing seems to largely consist of the Federal government taking over the powers currently exercised by oversight bodies in several key industries germane to the housing sector.

At first blush, a proggie like me thinks that the Federal government’s direct involvement in such issues might be a good thing. But then I stop and think that this really means a huge weight off the backs of large financial institutions – a huge savings of time, money and resources – with dubious benefit to the public. This article from Kansas City is but one article on the subject. I’m not convinced one way or the other on the issue of new regulations and I’m trying to look further into it, but you have to wonder: why is the Federal government imposing themselves on the insurance industry as a means to solve the mortgage industry’s problems?

Kansas City infoZine News – Federal Plan Would Shrink States’ Powers – USA

The federal government is also trying to assert itself in the insurance sector, where it claims the patchwork of state laws makes it tougher for U.S. firms to compete abroad and for foreign firms to enter U.S. markets. State insurance commissions have powers such as setting rates, monitoring claims practices and reviewing policy forms.

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Deeper Inside the Subprime Numbers

The report issued by Empire Justice on New York’s subprime woes points out that, in fact, about 44% of all subprime mortages in Monroe County (not Rochester, as has been reported on the 13WHAM blog) were in some form of trouble as of October of last year.  Those mortgages are either already in foreclosure, behind by more than 30 days and therefore subject to foreclosure, or about to have their rates “reset,” thus potentially increase to dangerous levels.  Looking at the map that details where in MC the subprimes concentrate, we see some of the old familiar patterns of poverty and debt.  The City NE is particularly hard-hit, as is Gates and Greece, especially where it touches the city.

But another trend is worth noting, which is where the line of suburban sprawl and the line of subprime woes intersect.  Notice that the trend of deep red extends straight across route 104, through Webster, at minimum.  It would be interesting to see how red it is in Wayne County as well.  The subprime troubles seem to skip right over Brighton, then slam back down with force in Pittsford, Perinton and Henrietta.

It’s all part in parcel of the same thing: the focus on fast growth, new home ownership, home construction all lead to people gambling more than they should and getting into trouble.  Since 9-11, the sales of homes have been the only feather in the economic cap of this current presidential administration.  But as we can see, high growth means high risk.  Is it any wonder that the man who has tanked every business he’s ever run now appears to have his hands in his pockets during our economic crisis?

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D&C Plays Down the Bear Stearns Impact

Most people tend to think of the media as a means to inform the public. Not the D&C. They see themselves as a vehicle for delivering messages they believe we need to hear for our own good. Whether or not that is the truth is irrelevant.

Take the opinions plummed from the local pool of “experts,” that the Bear Stearns deal isn’t going to have any effect on Rochester at all. Oh, heavens, no! We’re all going to be fine, because we all live in the Monroe County Smug Bubble, unlike all those poor bastards that live elsewhere.

Keep in mind that only 2% of the total national mortgage market is in foreclosure. What does 2% of the Rochester/Monroe County market look like? Well, not much at all. Yet 2% of the nation-wide market is enough to cause a recession (“or at least near, a recession,” in the words of the D&C), so what does that same 2% do to our economy here?

Well, that kind of question is just not acceptable to the D&C. I keep trying to answer that question, lacking as I do the resources of the D&C, but they patently refuse to cover the story at all. Rather, they’d prefer to hear from people who speak of “The Market” as though it was some sort of god, rather than the collective actions of fallible men:

Experts: Area has no bubble to burst | democratandchronicle.com | Democrat and Chronicle

“This is the market’s way of letting other (investment) firms know they should avoid the excesses of Bear Stearns,” Conboy said. “They shouldn’t play the way Bear Stearns played.”

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Subprime: The Psychological Effect, The Tipping Point?

As the news of Subprime foreclosures increases its dominance in the media and as more and more dire news comes out about our economy, it begins to manifest itself here in Rochester, even though most of the problems associated with the ARM market are well away from our modestly-priced homes.  The RBJ reports that local sales of homes decreased a breath-taking 27% from January to February.  This despite the fact that home values in Rochester have actually seen an 11% jump since this time last year, unlike elsewhere.  Also, the stock of available homes in Rochester is decreasing slightly, which will also serve to keep our home prices steadily rising.

Irondequoit just increased the assesments of their homes and that made the news, but an 11 jump across the board is definitely worth noting. . .

Elsewhere, a source close to me who has been dealing with a subprime mortgage in foreclosure just told me that the bank called them and unilaterally renegotiated the price and mortgage on the home.  One minute, they were demanding $3000 or the mortgage was going bye-bye; the next minute, they told the borrowers what the new mortgage price would be and that there would be no escrow for taxes and insurance.  No questions, no explanations, that’s it.

This may or may not indicate a tipping point, wherein banks have finally decided that taking a loss on one property that’s still generating revenue is better than taking a loss on a property that is sitting empty and generating squat.  That makes some sense, given the level of foreclosure across the country, and there’s no wisdom in shaking what is an otherwise stable realty market in Rochester.  Time will tell.

I’m curious to see if other borrowers have experienced this same curious turning?  If you’ve had similar dealings or know someone who has, please contact me and let me know.  We can keep your information confidential!