Hank Paulson is not done asking for more authority to “rescue” us from the mortgage crisis. In his first round of legislative begging, he got Congress to pass The Housing Economic Recovery Act of 2008 which gave him the right to take over Fannie and Freddie putting taxpayers on the hook for their greed and mismanagement. Most insiders figure that will cost about $300 Billion after all is said and done.

But Hank is not done!

Now after this horrific week of every company under the sun coming to Washington hoping for a bailout, it becomes clear to Hank he must do something “bigger”. He decided to hold a press conference Friday to announce he was working on a comprehensive rescue package that would alleviate the “crisis” at it’s source…in Paulson’s own words,

“The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy. This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible.”

Well now some of the specifics are coming out as Hank goes to the Hill laying out his plan. Hank’s plan involves getting Congress to give the Treasury Department open ended power to buy, hold, and then sell any residential or commercial mortgage assets originated before September 17, 2008.

According the American Banker,

“As drafted, Treasury could use its power to buy far more than $700 billion worth of mortgage assets over time. The draft language only restricts Treasury to holding no more than $700 billion of mortgage related assets “at any one time.” If it sold some assets back to the private sector, even at a loss, it could continue to purchase more, observers said. That could continue to drive up the potential cost of the plan to taxpayers.

“The authority is broad and the $700 billion represents the total amount at any one time but there is not a cap on the total amount of assets that can be purchased,” said Scott Talbott, senior vice president for government relations at the Financial Services Roundtable. “It’s a revolving line of credit.”

Yikes!

Paulson wants to buy the all the “bad loans” on the books at every financial institution now…not just Fannie Mae and Freddie Mac. Congress rolled over the first time Paulson came to the Hill, but insiders don’t believe Congress, especially the Democrats, will be as cooperative this second time around.

American Banker reports,

“There are going to be some hiccups of this plan because it’s completely open ended — Wall Street runs this plan and there’s no help for homeowners,” said Howard Glaser, a mortgage consultant. “Congress will find it very troubling that the asset managers running this program will be asset managers hired by Treasury.”

This is getting ridiculous. It reminds me of Naomi Klein’s, “Shock Doctrine” theory of the current Administration to use a “crisis” either real or imagined to pass legislation which “the people” would never stand for without the crisis.

To me it seems Paulson is using the Shock Doctrine to get Congress to pass far reaching legislation which includes no help for home owners or protections for the tax payer.

I truly hope Congress doesn’t fall for it.

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Tags: fed, federal reserve, Henry Paulson, paulson, The Fed

Alan Greenspan, the controversial former Fed Chairman, in an interview by the Wall Street Journal’s David Wessel gave us a few pearls of wisdom to ponder about the state of the housing market.

He starts out with a prediction calling for a stabilized market by summer of 2009. Greenspan admits depending on the size of the bubble certain location will see continued price declines after his deadline. But for the majority of markets, a never-ending price depreciation will end about a year from now…and I happen to agree with him on this point.

Denver, where I live, was first into the bubble (a smallish bubble at that) and will be the first out. We are already seeing signs of this as the Case-Shiller Index for Denver was up for 2 months in a row in May and June. However, Phoenix, Las Vegas and other markets like them were late to the bubble party and saw bigger price appreciation, so they won’t hit Greenspan’s target but will follow soon after.

Greenspan bases his prediction on supply versus demand statistics as well as rent versus own price corrections. He states it best by saying,

“It’s the imbalance of supply and demand which causes prices to go down, but it is ultimately the valuation of the commodity which tells you where the bottom is.”

He uses the current figure of 800,000 vacant homes and figures it will take a year to liquidate enough of those homes at lower and lower prices, that an equilibrium will be hit when investors feel the desire to hold on to the home rather than sell…put another way, when it costs more to rent than to own.

I like this dual methodology for analyzing the bottom in the housing market. Historically, home owners had to see a benefit from owning versus renting and landlords needed a premium to stay landlords. Greenspan knows a “corrected” market will return us to that state. He also informs us the number of households created in a year in the US today is 800,000…the same number as vacant homes, so the supply/demand component is covered too.

If prices could drop fast enough to make a mortgage payment less than rent for the same house…violia…the bottom is reached.

He warns against too much legislation, tax incentive, or bail out activity which could slow the speed in the drop of housing prices. Subsequently, he voiced he dissent on the GSE bailout by saying,

“They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted — with necessary taxpayer support to make them financially viable — as five or 10 individual privately held units,”

Greenspan fears a huge taxpayer bill coming due for Fannie Mae and Freddie Mac thanks to Hank Paulson’s new law…and I share his concern.

Wow…I agree with Alan Greenspan a lot here…I’d better go lay down.

Tags: Alan Greenspan, fed, federal reserve, The Fed

I would bet every reader of this blog has heard of Mark Twain. On the other hand, I would bet I’m probably the only person on this blog familiar with Craig et al v. The State of Missouri. This article gives quite a bit of insight into Samuel Clemens. Please read it before you read the rest of this post.

I suggest you read the article because you will undoubtedly recognize a good number of today’s “events” in references from quoted Twain writings. It seems not much has changed in the 100+ years Twain put pencil to paper.

You don’t need to read the Craig case. I’ll summarize it in a sentence or two. The U.S. Supreme Court was deciding an appeal from a case in Missouri in which Craig claimed the issuance of bills of credit by Missouri violated the Constitution. Should you decide to read the case, simply put it in your favorite search engine. If you do, you’ll see the court decided in favor of Missouri.

Also, you will get quite an education on paper money and its (il)legality. If you would like more information on how wide spread this idea of emitting bills of credit has become, I suggest you read this article.

To put it all in perspective, at least according to me, I’ll quote Thomas Jefferson:

“What has destroyed the liberty and rights of man in every government that has ever existed under the sun? The generalizing and concentrating of all cares and powers into one body, no matter whether of the autocrats of Russia and France or of the aristocrats of a Venetian Senate.”

I didn’t write this post to even suggest I’m some sort of brain child or have all the answers. I wrote it because

I saw this headline the other day — Fed plans new rules to protect future home buyers. Where in the hell did the Federal Reserve get the authority to step into housing? It just so happens the answer is in a paper written by Sterling E. Edmunds of the St. Louis Bar. His paper is titled: The Roosevelt Coup D’ Etat of 1933-40

Chapter VII is titled: The End of the Cycle of Constitutional Freedom for the American Citizen. Scary, this freedom snuffing activity by the government.

If you decide to research any of the above referenced material, let me know if you think it pertains to today’s events. I’d like to hear your thoughts on the validity of it being the ground work for those of us experiencing its aftermath.

Tags: federal reserve, history, housing, mark twain, politicics, The Fed

It’s like one of those TV shows where after an entire season in which everything goes wrong for the star, he finally awakes to find it was all just a bad dream–everything was just fine!

Jesus. Who wants to watch a show that has an unhappy ending?

Apparently, we all have to watch it and, worse yet, live through it!

What began as a real estate debacle is now a full grown global economic crisis.

A New York Times story out of Washington says that a consensus has been reached among federal officials that , as the Times puts it, “the turmoil plaguing the housing and financial markets is likely to spill deep into 2009…”

Foreclosures? Want to See Foreclosures? You Ain’t Seen Nothin’ Yet!

No sir. Treasury Secretary Henry Paulson is now saying that even if a comprehensive housing relief bill is passed and signed into law, “many of today’s unusually high number of foreclosures are not preventable.” He estimates there will be about two and a half million more foreclosures by the time we get to the New Year.

So, what is being done?

Congress appears on the verge of passing some type of legislation aimed at giving a helping hand to homeowners in trouble, only, according to some experts, that hand only has one finger and my guess is, it is the middle one.

The nonpartisan (can there really be such a thing??) Congressional Budget Office has done some research which is, after all, what it does. And, according to Reuters, it found the pending legislation “would do little to ease the housing crisis.”

That’s just great.

Who Was Watching The Watchers?

Apparently no one was watching them. A review by the Securities and Exchange Commission has concluded that the three main credit rating agencies–Moody’s Investors, Standard & Poor’s and Fitch Ratings–failed in their primary responsibility to make sure there were no conflicts of interest in awarding high ratings to securities that were destined to tank because they were backed by—–subprime mortgages!

Putting The Dots Together

Here’s pretty much what it comes down to–if you are thinking about investing in real estate and are operating on the assumption that things could only get better in the not too distant future, then you operating with a wrong assumption and need to be fully aware that you are before shelling out any of your hard earned but inflation eroded cash.

I have said it before and will say it again: If you do NOT know what you are doing when it comes to real estate investments, or do not have someone with enormous experience guiding your hand, forget about it. Use your money to pay down credit card and other debt. Wait until the wind stops blowing and you can truly evaluate what the damage has been.

Whenever I have said this in the past there is always some real estate broker who gets all flushed and writes something to the effect that this is a golden time to invest in real estate because prices are so low.

Well, you know what….if they think this is such a great time to invest in real estate, ask them to loan you the money and see how fast they stop returning emails!

When federal officials start saying things are really worse than anyone thought, that should make the hairs on your body stand up and fall out.

By any measure, we are in for a very rough flight. And, what do you do during a rough flight? Yep. You stay seated and keep your seat belt on.

Think of this as a sort of metaphor for real estate investing now–only, instead of staying seated, what you want to do is stay solvent by keeping your money out of real estate investing UNLESS YOU KNOW WHAT YOU ARE DOING! (The bold letters are to keep real estate brokers somewhat happy so they won’t write nasty comments.)

Tags: fed, federal reserve, foreclosure, Foreclosures, housing, real estate, real estate investing, The Fed

Want to know just how bad the mortgage / housing / credit / banking / securities / oil / crisis has become? Okay. When was the last time you heard a high ranking government official actually call for lenders to slash the amount of their loans…NOT the interest, the principal!

That is exactly what Federal Reserve Chairman Ben Bernanke has done–called for a reduction in actual loan amounts in order to try and contain the current economic crisis.

“This situation,” said Bernanke, “calls for a vigorous response.”

Duh!

Let’s see why this might be, shall we?

The Fed Chairman himself is warning that mortgage delinquences and foreclosures are more than likely on the way up, not down.

In 2008, about one and a half million subprime loans with adjustable rates are slated to reset to higher rates.

Banks and other lending institutions continue to take a beating from what began as a mortgage crisis.

The stock market is more depressing than a White House position paper.

Oil and now gas prices are rising to levels not seen since the 1980s–and, adjusted for inflation, are actually higher now than before.

So, no wonder the government–even this one–is really getting worried now. Finally.

Which brings us to Bernanke’s proposal: “Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foresclosure,” he says.

Talk About Tough Sells

Asking lenders to actually write down principal is a bit like asking a very hungry lion to take a pass on a big chunk of fresh meat.

But, Bernanke may have hit upon at least part of the solution to this growing problem.

And, then, too, there is the animosity factor to consider. People who took out mortgages they could afford may really get angry if those who took out mortgages they couldn’t afford walk away from the table with lowered principal!

Some hard decisions clearly must be made. But, do our politicians in Washington have the guts to make these decisions? D.C.’s record can not offer encouragement on this front, yet, there does seem to be a growing recognition that we are in the middle of a global, largely U.S. caused, economic mess. This calls for emergency measures that would have been unthinkable in this country just a few months ago.

Tags: Ben-Bernanke, federal reserve chairman, Foreclosures, principal, subprime mortgages, The Fed

If the announced planned merger of Bank of America and Countrywide Financial Corp goes through, BofA will be involved in about one in every four mortgage loans in the United States.

One in four!

Now one way to look at this is, this is a good thing. It will probably rescue Countrywide -described by the New York Times as, “the troubled lender that became a symbol of the excesses that led to the subprime mortgage crisis.”

Another way to look at this is bad…bad news for the U.S. economy and one of the biggest signs to date just how fast it is sinking beneath a tidal wave of For Sale signs.

Why?

Because the head of BoA ,Kenneth Lewis, has been quoted as saying that, although his bank always wished to be a much bigger player in mortgage banking, he wouldn’t even think of buying up another mortgage lender, such as Countrywide, “until blood is running in the streets.”

Guess the blood has started to gush enough to get Bank of America’s interest.

Meantime, the damage done by the subprime mortgage fiasco just keeps getting worse with no end in sight.

The head of the Federal Reserve is now painting a really bleak picture of the economy, a real about face from only a few months back.

Says Ben Bernanke, “The outlook for real activity in 2008 has worsened.”

With that very much in mind, Bernanke has suggested that the Fed might make yet another, bigger cut in interest rates and real soon.

That’s good, because American consumers are not exactly happy campers right now.

The biggest retailers in the nation are saying that their holiday sales gains are weaker now than any time in the past five years.

But even that may be too little and much too late, which may force Congress to step in and do what it always tries to do when capitalism runs amok: slap government controls on parts of the economy.

Remember how when word of the subprime mortgage problem first really got the attention of the public and news media, it seemed a somewhat localized problem with a quick fix provided by slightly lower Fed rates the obvious answer?

Well, forget that. This has turned into a global credit crunch leading to the forced resignations of some banking and mortgage lending giants’ chief executives, not to mention the almost certain prospect of tens of thousands, if not millions, of homeowners on the cusp of foreclosure.

So, I say, bless Bank of America for buying the United States. Heck, it might as well snap up Canada and Mexico while it’s at it.

That way, if nothing else, everyone will save on those nasty ATM fees cause we will all be customers of Bank of America one way or the other.

Bank of America, Countrywide, subprime mortgage, economy, Bernanke, credit crunch

Tags: bank of america, Ben-Bernanke, countrywide financial corp, federal reserve, The Fed

The Fed Moved! Freaking amazing when you think about it. The first few words to appear in the first paragraph of an updated New York Times posting are :” The Federal Reserve moved…”

Now this may seem like a fairly benign statement until you consider this: Had the Federal Reserve moved say, six or seven years ago, we might not be in this mortgage/housing/credit/banking crisis that we find ourselves in, along with much of the rest of the developed world.

How do we know this?

According to a Times article from Washington, some seven years ago, Edward Gramlich, then a Federal Reserve governor, warned that “a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.”

Sound familiar? It should. It’s the root cause of the chaotic financial mess that has engulfed us like a mountain lion chomping down on a parakeet. (And no, I don’t know if mountain lions even like parakeets or even know, for that matter, what a parakeet looks like.)

BUT…reportedly, when Gramlich tried to nudge the Fed to move and take a closer look at the developing mortgage lenders/national banks connection, then Fed chairman Alan Greenspan told him to f— off! Okay, maybe Greenspan didn’t actually tell Gramlich to f–off; but, he clearly wanted to because Greenspan sat on his butt and did, hold on to your seats, nothing.

In fairness, which I am not inclined to be, mind you, Greenspan told the august Times that the reason he sat on his butt was because the Fed was “poorly equipped to investigate deceptive lending” and, is “not to blame for the housing bubble and bust.” Poorly equipped? The U.S. government? I mean, could the Fed have at least rounded up a few of those college intern-types to do the heavy lifting and help with the much needed investigations?

The reason, other than spite, for bringing up the non-movement of the Fed seven years ago, is to contrast it with what has apparently just happened as I sat down to write this post. What has happened now is…….The Federal Reserve moved! It came up with some new restrictions to curb unfair and deceptive home-lending practices, reports the Times.

Voting 5-0, the Fed opted to “tighten provisions meant to protect borrowers and apply them to a far larger share of home loans.”

After a period to permit public commenting, the proposed new rules could go into effect next year.

Now then, the Fed is doing all this using its power under the Truth in Lending Act as well as the Home Ownership Equity Protection Act. And, you know when that act went on the books?

All the way back in 1994. Which brings us back to the now very dead Edward Gramlich who wanted his own agency to do something seven years ago when Greenspan now says the Fed lacked the equipment to move. Nonsense. It had all that was needed in 1994.

Gramlich must be turning in his grave, his corpse practically shouting out to Greenspan : “I told you so, you shmuck!” or words to that effect.

But, in the meantime, let us all take solace in the fact that The Fed Has Moved!

Tags: Alan Greenspan, federal reserve, mortage crisis, The Fed