dimelab: bad Topic in The Credit Debacle Catalog at Feed-Adept

bad Topic in The Credit Debacle Catalog

Bruce Krasting Tue 2010-03-09 17:10 EST

Some Thoughts on Fannie's Horrible Year

Fannie Mae released it's annual and 4th Q numbers after the close on Friday and during one hell of a messy snowstorm. FNM posted a loss of $16.3b for the quarter and $74.4b for the year. An unmitigated disaster. The timing of the release suggests that they were hoping that no one would notice how bad the last twelve months were. There was nothing particularly new in the most recent quarter, just more bad news. What is happening at Fannie is also happening at Freddie Mac and to a different extent at FHA. There are some trends that I think are worth noting...they have moved to restrict lending to better borrowers...all three of the D.C. mortgage lenders are pulling on the credit reins...It will be harder to get a mortgage in one month from today and even harder to get one six moths from today. For me the implications of this are very obvious. Broad RE values will have to go lower, high-end homes will suffer the most in percentage drops...the biggest seller of RE over the past 24 months in America has been the federal government...The vast majority of defaults come because borrowers are underwater. Falling RE prices are the number one contributor to the default cycle...

Bruce Krasting; Fannie's Horrible Year; thought.

Mon 2010-03-01 09:20 EST

AlterNet: Hey, America: It's Time to Redefine the "Good Life"; excerpted from the The Spirit Level: Why Greater Equality Makes Societies Stronger

Richard Wilkinson and Kate Pickett

...We are social epidemiologists; people who usually spend their time trying to understand how social factors affect population health. Our work has focused on different aspects of wellbeing in rich market democracies. Rather than looking at subjective measures, such as happiness, we have looked at objective measures, such as life expectancy, homicide rates, drug abuse, child well-being, levels of trust, involvement in community life, mental illness, teenage birth rates, children's math and literacy scores, and the proportion of the population in prison. Instead of finding that each society does well on some of these outcomes and badly on others, we found that countries tend to be consistently good or bad performers, across the board. If a country has high life expectancy, it also tends to have stronger community life, a smaller proportion of its population behind bars, better mental health, fewer drug problems and children doing better in school. The differences in the performance of more and less equal countries are very large. Rather than things being just a bit worse in more unequal countries, they are very much worse. More unequal countries have three times the rates of violence, of infant mortality and of mental illness. Their teenage birth rates are six times as high, and rates of imprisonment are eight times higher...

AlterNet; America; excerpts; good life; Greater Equality Makes Societies Stronger; redefines; Spirit Level; Time.

New Deal 2.0 Sat 2010-02-27 22:55 EST

GSE Losses As Shadow Bailout

Roosevelt Institute Fellow Mike Konczal

...As the private sector started to dump housing and housing bonds quickly in 2007 and 2008, government officials made sure that the GSEs would be capable of absorbing these bad loans...This constitutes one part of many ``shadow bailouts'' according to Roosevelt Institute senior fellows Rob Johnson and Tom Ferguson; this argument, and the graph above, is from their Too Big to Bail: The `Paulson Put,' Presidential Politics, and the Global Financial Meltdown Part II paper. (In Part I, they argue that the Federal Home Loan Bank System was also used in a similar manner.) Astute readers will notice that the action of government officials using public funding sources to provide makeshift backstops for losses of the banking sector to clear the balance sheets of toxic assets to ``unlock the frozen credit market'', without having to go to Congress for funding, was also a central feature of Geithner's PPIP plan, with FDIC stepping up to the plate once the GSEs went bust...

0; GSE losses; new dealing 2; Shadow Bailout.

THE PRAGMATIC CAPITALIST Wed 2010-02-10 11:22 EST

AN INSIDER'S VIEW OF THE REAL ESTATE TRAIN WRECK

TPC

The first time I spoke with real estate entrepreneur Andy Miller was in late 2007, when I asked him to serve on the faculty of a Casey Research Summit...what most intrigued me about Andy was that he had been almost alone among his peer group in foreseeing the coming end of the real estate bubble, and in liquidating essentially all of his considerable portfolio of projects near the top...he remains deeply concerned about the outlook for real estate...the United States home mortgage market has been nationalized without anybody noticing...If government support goes away, and it will go away, where will that leave the home market? It leaves you with a catastrophe...eventually the bond market is going to gag on the government-sponsored paper...commercial properties are not performing and that values have gone down, although I've got to tell you, the denial is still widespread, particularly in the United States and on the part of lenders sitting on and servicing all these real estate portfolios...The current volume of defaults is already alarming. And the volume of commercial real estate defaults is growing every month...When you hit that breaking point, unless there's some alternative in place, it's going to be a very hideous picture for the bond market and the banking system...second quarter 2010 is a guess...the FDIC and the Treasury Department have decided that rather than see 1,000 or 2,000 banks go under and then create another RTC to sift through all the bad assets, they'll let the banking system warehouse the bad assets. Their plan is to leave the assets in place, and then, when the market changes, let the banks deal with them. Now, that's horribly destructive...it's exactly a Japanese-style solution...The entire U.S. residential mortgage market has in effect been nationalized, but there wasn't any act of Congress, no screaming and shouting, no headlines in the Wall Street Journal or the New York Times...That's a template for what they could do with the commercial loan market.

insider's view; pragmatic capitalists; Real Estate Train Wreck.

Sun 2010-01-31 11:43 EST

Hussman Funds - Weekly Market Comment: The Stock Market Has Never Been This (Intermediate-Term) Overbought - October 19, 2009

In reviewing the status of the market late last week, the condition of the data was something of an anomaly in that regard. On the valuation front, stocks are presently overvalued, but to levels that we've observed at least several times in history. The anomaly relates to market action, where we can no longer find a single historical instance where stocks were more overbought on the combination of short- and intermediate-term measures we respond to most strongly. Indeed, only one instance comes close, which is November 28, 1980...the peak of the furious advance in S&P 500 driven by enthusiasm over "less bad" economic news, though with little proven economic strength. It was the last day of the 1980 bull market. The economy later proved to have been in a short lull within a double-dip recession, taking stocks to their final lows in 1982...One of the notable features of extreme overbought conditions is that investors rarely have much opportunity to get out...

2009; Hussman Funds; intermediate term; October 19; Overbought; stock market; weekly market comments.

The Economic Populist - Speak Your Mind 2 Cents at a Time Mon 2009-12-28 18:57 EST

Pricing a CDO - Not only Bad Math, Bad Computation too

A working paper, Computational complexity and informational asymmetry in financial products, Sanjeev Arora, Boaz Barak, Markus Brunnermeier, Rong Ge. sheds some light on the complex mathematical models upon which credit default obligations and other derivatives are based. What Arora et al. prove is not only are many derivative mathematical models impossible to compute, never mind in real time, because they require more computing power than the world possesses, the missing information to run a mathematical model is a very good place to cheat with.

Bad Computation; bad math; CDO; economic populist; Mind 2 Cents; Price; speaking; Time.

naked capitalism Mon 2009-12-28 17:16 EST

Guest Post: Princeton Economist and Computer Scientists Show that Derivatives Are Inherently Vulnerable to Fraud

Washington's Blog

...the main default risk model for credit default swaps -- the ``Gaussian copula function'' -- was inherently flawed. Now, Princeton University economists and computer scientists have demonstrated that financial derivatives are also inherently vulnerable to fraudulent pricing. PhysOrg summarizes Princeton's findings: ...sellers of these investments could purposefully include pieces of bad risk that no buyer could detect even with the most powerful computers... the problem arises from asymmetric information between buyers and sellers, and goes against conventional wisdom in economic theory, which holds that derivatives reduce the negative effects of such unequal information.

Computer Scientists Show; derivative; fraud; Guest Post; inherently vulnerable; naked capitalism; Princeton economists.

Unqualified Reservations Fri 2009-12-18 10:03 EST

Expiring liquidity facilities: bad plan, Stan

Mencius Moldbug

I predict: serious financial disturbances will occur on or before February 1, 2010. Or soon thereafter...I also have a serious - ie, verifiable - prediction. I predict that before the end of 2010, probably well before the end of 2010, possibly even before the beginning of 2010, the Fed will be forced to renew these facilities or others like them. In other words, I predict that its attempt to kick the liquidity junk will not succeed. In the end, I believe all these "temporary" facilities will become substantively permanent - just like the original LF, deposit insurance.

Bad plans; Expiring liquidity facilities; Stan; Unqualified Reservations.

Jesse's Café Américain Wed 2009-12-02 18:58 EST

The 38 Year Cycle in US Monetary History

Jesse

..the longer cycle of 38 years and some others, is that they involve what people call 'generational memory.' People as a group essentially forget the lessons of the past, and human nature being what it is, events based on bad judgement and reckless behaviour seem to recur at these intervals. If there was any 'tell' for the current crisis, it was the general overturning of the safeguards for the financial system that had been put in place in the aftermath of the financial panic of 1929 and the Great Depression that followed, culminating in the eventual overturn of Glass-Steagall and the ascendancy of extreme leverage using exotic, unregulated instruments. This is why we call this a generational change. This is no slump, no recession. And it is far from over. We are experiencing some major changes that are easily lost when one only looks at the day to day moves, listens to the description of events on the mainstream media, and of course, have a lack of memory, a knowledge of history, of things that have happened to their grandfathers and great grandfathers. The arrogant ignorance of so many still in place is a sure sign of greater chastisement to come, until the lessons of history are learned again, and the system is brought back into a sustainable balance.

38 Year Cycle; Jesse's Café Américain; monetary History.

Jesse's Café Américain Tue 2009-12-01 10:06 EST

Morgan Stanley Fears UK Default in 2010

Jesse

As you may recall we are bears on sterling, and view the UK as the Iceland of the G20.The monetary policies of the Bank of England were as bad as those of the Greenspan - Bernanke Fed. The difference is that the UK does not hold the world's reserve currency as a captive source of revenues. As an aside, we see that Bank of England advisor and economic franc-tireur Willem Buiter has decided to seek greener pastures as chief economist with Citi in the States. Timely exit. Bravo, Willem.

2010; Jesse's Café Américain; Morgan Stanley Fears UK Default.

naked capitalism Thu 2009-11-19 19:32 EST

Very Abbreviated Takedown on SIGTARP Report on AIG CDS Payouts

Dear sports fans, your humble blogger, along with a ton of others, got the not-very-embargoed copy of the SIGTARP report on the New York Fed's conduct with respect to its full payout on AIG's credit default swaps to its counterparties. The press is treating the report as if it was tough. I was sputtering with anger when reading it on how soft it was on the Fed. The positioning and framing of the issues was almost without exception far too forgiving. It read as if the findings had been negotiated with the Fed (and SIGTARP lost the negotiations as the ``shape of the table'' stage), but I am assured not, not by SIGTARP, but by those, as they like to say, in a position to know. That says SIGTARP is almost as badly cognitively captured as the Fed is...

Abbreviated Takedown; AIG CDS Payouts; naked capitalism; SIGTARP report.

Thu 2009-11-19 10:12 EST

Business & Technology | Part one | Reckless strategies doomed WaMu | Seattle Times Newspaper

Drew DeSilver

In its headlong pursuit of growth, WaMu systematically dismantled or weakened the internal controls meant to prevent the bank from taking on too much risk -- the very standards and practices that had helped it grow in the first place. WaMu's riskiest loans raked in money from high fees, but because the bank skimped on making sure borrowers could repay them, they eventually failed at disastrously high rates. As loans went bad, they sucked massive amounts of cash that WaMu needed to stay in business. WaMu's subprime home loans failed at the highest rates in nation. Foreclosure rates for subprime loans made from 2005 to 2007 -- the peak of the boom -- were calamitous. In the 10 hardest-hit cities, more than a third of WaMu subprime loans went into foreclosure.

business; part; Reckless Strategies Doomed WaMu; Seattle Times Newspaper; Technology.

Mish's Global Economic Trend Analysis Tue 2009-11-03 20:30 EST

Is Debt-Deflation Just Beginning?

Michael Shedlock

You should not be afraid of deflation. You should be afraid of policies attempting to fight it. Deflation (rather price deflation) is actually the natural state of affairs. As productivity increases, more goods and services are produced relative to the population and prices would therefore be expected to drop. It is the Fed, along with misguided Keynesian and Monetarist economists who think falling prices are a bad thing. Who amongst us does not like falling prices (except of course on things we own like houses, but even then who is not sick of higher property taxes that result)? The reality is inflation benefits those with first access to money. Guess who that is? The answer is easy: banks, government, and the already wealthy. Inflation is actually a tax on the middle class and the poor who get access to money last. During the housing bubble, by the time the poor could get access to to money easily, it was far too late to buy. Given that inflation benefits those with first access to money, any targeted inflation at all is morally wrong.

Debt-Deflation Just Beginning; Mish's Global Economic Trend Analysis.

naked capitalism Fri 2009-10-23 09:50 EDT

Guest Post: The Ongoing Cover Up of the Truth Behind the Financial Crisis May Lead to Another Crash

George Washington of Washington's Blog

William K. Black -- professor of economics and law, and the senior regulator during the S & L crisis -- says that that the government's entire strategy now -- as during the S&L crisis -- is to cover up how bad things are (''the entire strategy is to keep people from getting the facts'')...PhD economist Dean Baker made a similar point, lambasting the Federal Reserve for blowing the bubble, and pointing out that those who caused the disaster are trying to shift the focus as fast as they can...Economist Thomas Palley says that Wall Street also has a vested interest in covering up how bad things are...The media has largely parroted what the White House and Wall Street were saying...One of the foremost experts on structured finance and derivatives -- Janet Tavakoli -- says that rampant fraud and Ponzi schemes caused the financial crisis. University of Texas economics professor James K. Galbraith agrees...Congress woman Marcy Kaptur says that there was rampant fraud leading up to the crash...Black and economist Simon Johnson also state that the banks committed fraud by making loans to people that they knew would default, to make huge profits during the boom, knowing that the taxpayers would bail them out when things went bust.

Crash; Financial Crisis; Guest Post; lead; naked capitalism; Ongoing Cover; truth.

zero hedge Mon 2009-10-12 10:05 EDT

How Currency Devaluation Can Be A Bad Thing

Even as the dollar keeps hitting new daily lows, which continues being seen as a positive for the stock market, if not so positive for what little remains of world trade, not much has been said about the efforts by Latvia to do all it can to devalue its currency in the wake of a failed bond auction. The consequences are already metastasizing, as seen by the increasing volatility of related currencies, particularly the Swedish Krona which has been hit hard against the Euro on concerns of the country's exposure in Baltic states.

bad things; Currency Devaluation; Zero Hedge.

Calculated Risk Mon 2009-10-12 09:56 EDT