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Speed.

I’ve not been reporting or analyzing on the current state of the financial meltdown very much in the last week.  That’s at least in part because things are moving so fast at the moment and statements are coming from so many different quarters, it’s difficult to keep up with in a meaningful way.  I don’t see any reason to add to the din unless I can provide something on the order of a coherent statement, which at the moment is difficult.

But one thing I can say for certain is that the speed of the recovery effort is more troubling than the speed of the crisis, at the moment.  There’s lots of big headlines and breathless discussion in the media, but let me say that no one in a position of authority should have been surprised by what is happening now.  The subprime/ARM mortgage meltdown has been going on for eight months and it is on the basis of commoditized mortgages that a lot of wealth has been built which is now disintegrating.  Where were all these leaders while Secretary Paulson was handing out bailouts?  Where were the big questions that might have provided us a more organized solution?

And now that we’re trying to come up with a national solution to a problem, I am drearily unsurprised to see that the problem at hand is largely rich people losing money.  No one cared when some grubby poor people were losing thier homes, but now that large bank executives are in danger of losing their yachts, it’s all hands on deck.  So, now the Congress is expected to hand over $700bn dollars to the White House that brought us Katrina and Iraq without strings.

Here’s a question that’s worth asking: what, precisely, is the purpose of all these billions of dollars?  Irrespective of what we do in the short run, there is nothing more fundamental to this crisis than the fact that all of the wealth accumulated in the last ten years or so was built on an entirely false pretense: the notion that these mortgages were going to be paid off.  No matter what we do in the next three months, a breathtakingly large portion of global wealth is about to evaporate.  Irrespective of whom does the selling – the government or the banks – the bad debts which are the basis of the problem will necessarily be sold at fire-sale prices.

The plan as far as I can tell is that the White House wants to buy up bad debt – whose value is in free-fall – from banks at a fixed price.  Guess whom that benefits?  If you guessed “the banks,” you’re spot-on.  Because we’re never going to get our $700bn back from selling those assets.  It’s like buying a bag of over-ripe bannanas.

I think Hank Paulson is a genuinely disciplined and principled person, based on what I know of him and what I see of him in interviews.  I’m watching him on This Week right now, and there’s no question he’s freaked out, but he’s clearly trying his best to solve a problem for which there are no easy answers.  And of course, if it’s up to you to solve the problem, you’d want as few strings attached to the money you need just in case the first idea doesn’t work the way you’d hoped.

But it’s worth all of us taking a breather for a moment and considering how we got here and whether what we’re doing is going to improve the future.  In my estimation, without stipulating some sort of reforms in addition to the bailout, we are doing very little for our future much past the first ten years when such “superfunds” and mortgage-based investments will be highly unappetizing to “the market.”

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This Day in Economic Tailspinning

Four Fannie Mae execs resign.  Wall Street execs who created the Subprime mess in the first place tsk, tsk as usual

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McCain: Lobbyists are Bad

You’ve gotta love this McCain Op-Ed in the Wall Street Journal, excoriating Fannie and Freddie Mac for their supposedly endemic problems and the do-nothing Congress that let it get so out of control.  Best of all, McCain blames lobbyists, presumably meaning the 20 or so lobbyists that run his campaign and have advocated for Fannie or Freddie over the years.  I’ll bet he’s giving them hell over the crab dip at fundraisers.

But wait. . . .

Fannie and Freddie have lobbyists?  Does anyone see the logical fallacy in this?  Yes, of course.  Government agencies do not lobby each other.  Fannie Mae and Fredie Mac, while setup by the Congress, are autonomous agencies over which Congress has had very little control.  Until now, that is.

And so I’m confused: is John McCain advocating Congress and the government take more control of the national housing economy?  Because Fannie and Freddie are easily the largest institutions in that market.  That means that the mortgage industry is for all intents and purposes a national industry at this point.  Dig that?  You can’t have a national health care plan, but you can have a nationalized mortgage industry.

That doesn’t sound very Republican to me.

And I say it every time we get on the subject of the Fannie/Freddie near-collapse: the problem is not any internal structural problems at these two agencies, though I’m sure there’s probably plenty of those.  The problem is that the government is stepping in to save the country from the depression that could have happened because of reckless private banking.  Not that anyone’s going to bother reporting that, but I though you might be interested.

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Fannie and Freddie Seized

If you’ve been paying attention to the Subprime situation at all, you no doubt anticipated this move, despite the government’s assurances that it such would not be necessary: the Treasury today assumed responsibility for Freddie and Fannies mortgages, firing their CEOs.

Oh, dear.

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“Failing” Fannie to shake up management

MSNBC.com picks up the story this morning about Fannie Mae’s new management shakeup.  Straining under the pressure of the Subprime mess, Fannie has opted to shake up management in an effort to instill confidence of the private sector that they’re going to weather the storm.

Well, ain’t that rich?  Nowhere in the story is there any description of why Fannie and Freddie are so encumbered.  Rather, the discussion leaves the impression that yet another government-backed institution is crumbling in the midst of controversy and crisis.  Nowhere is there a discussion of the fact that a decade and a half of irresponsible lending and reckless profit motive in the private sector cause the Subprime/ARM Mortgage crisis.  Not a word about the fact that – at the behest of the anti-government government of George Bush – the partial public agencies of Fannie and Freddie took on the bad debts of the private sector in an effort to keep people in their homes and the market from crashing our entire economy.

There is, however, copious tsk-tsking and doom-saying on the part of private sector analysts, many of whom probably cheered on the reckless spending that got us into this mess.  How nice.  It’s like setting your house on fire while juggling torches. . . and then bitching about the fire department’s response time.

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Are Ya Listening? M.C. Highest Subprime Foreclosures in Upstate

Local media, especially the Democrat and Chronicle and the Rochester Business Journal, have been bending over backwards to say that Rochester and Monroe County are immune to the subprime crisis.  Well, shit.  Turns out that’s not true:

Report: Monroe County has most foreclosures in upstate | Democrat and Chronicle

Monroe County has the worst home foreclosure problem of any upstate county, the state Commission of Investigation said Thursday in a report that called for tougher state laws regulating the mortgage business.

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It’s an Eminence Front

The sun shines
And people forget
The spray flies as the speedboat glides
And people forget
Forget they’re hiding
The girls smile
And people forget
The snow packs as the skier tracks
And people forget
Forget they’re hiding.

Behind an eminence front
Eminence front – It’s a put on.

Come on join the party
Dress to kill
Won’t you come and join the party
Dress to kill.

The drinks flow
People forget
That big wheel spins, the hair thins
People forget
Forget they’re hiding
The news slows
People forget
The shares crash, hopes are dashed
People forget
Forget they’re hiding.

Behind an eminence front
Eminence front – it’s a put on
Come on join the party dress to
Come on join the party dress to
Come on join the party dress to
Come on join the party dress to kill
Dress yourself, dressed to kill.

[youtube]http://www.youtube.com/watch?v=URFbwUkBrjA[/youtube]

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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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M&T or B&S?

One wonders at the Herculean effort that must be required of the editing department of the Democrat and Chronicle that they’re able to have psychic space for the subject of my last post and this latest article in the same moment:

Wall Street roughs up Buffalo-based M&T | democratandchronicle.com | Democrat and Chronicle

According to M&T’s quarterly filings, the bank has an increasing amount of bad debt related to the nation’s real estate woes, with $99 million in loan charge-offs for the quarter, up from $22 million the same quarter a year ago. Those charge-offs, M&T said, in large part were loans to residential real estate developers and builders.

M&T said it also saw increased amounts of bad home equity loans and residential real estate loans.

So, the “conservative” principles that local banks rely on have kept them in good stead. . . except when that 99 million in defaulted loans becomes convenient to explain the loss of profitability.  Figure that out.