RSS Feed
Twitter
Facebook
Email
HomeGames of Chance: TALF, PPIP, TARP, FDIC, FASB
Posted by Larry Doyle on April 7th, 2009 2:40 PM |
In thinking about the economy, markets, and our banking system, my memory brings me back to my early days in New York. While working my way along 8th Avenue back to my apartment in Hell’s Kitchen, I would happen upon numerous versions of the classic NYC “hustle.” The shell game (also 3 card monte) was rampant in NYC in the ’80s. Mayor Giuliani cleared out this game, along with a host of other street scenes. For those not familiar with this game, there was a constant need for new players with new money to keep the game alive.
Why do these games remind me of our current banking system? The similarities are scary. Let’s access the most recent piece from John Mauldin’s site to “view the games.”
Mauldin’s guest, John Hussman, comments on these various “games” (TALF, PPIP, TARP, FDIC, FASB), in which taxpayers bear the brunt of the risk in the government’s engagement with financial institutions. Hussman writes of the PPIP:
this is a recipe for the insolvency of the FDIC and an attempt to bail out bank bondholders using funds that have not even been allocated by Congress. The whole plan is a bureaucratic abuse of the FDIC’s balance sheet, which exists to protect ordinary depositors, not bank bondholders.
Did Wall Street Flip Off Treasury Today?
Posted by Larry Doyle on March 25th, 2009 4:55 PM |
The U.S. government was heavily involved in the bond market today. How did they do? They bought high and sold low. What happened?
The Fed announced last week that they would engage in buying hundreds of billions of government and mortgage securities in an attempt to move interest rates lower and spark consumer and corporate borrowing. Today, the Fed made their initial purchase under this program at mid-morning. Thanks to MB, I learned that Wall Street offered the Fed three times more bonds than it actually purchased. I gather that the Fed wanted to be extremely patient and diligent in their purchases. In any event, at mid-morning the Fed would have bought bonds near the market highs of the day.
Later in the day, Treasury issued multiple billions in 5yr notes. How did they do with this sale? Not very well. Wall Street backed up their bids an almost unheard of 5 basis points (.05%) to fully underwrite these bonds. What happened? (more…)
FDIC . . . For Doing It Correctly
Posted by Larry Doyle on March 19th, 2009 2:41 PM |
Sense on Cents is very judicious in selecting our Economic All-Stars (highlighted in the left sidebar). These individuals continually display a level of professionalism, maturity, consistency, and integrity which are not commonly found in our financial or political spectrum. I deeply appreciate their insights and perspectives and enjoy sharing them with our audience at Sense on Cents and No Quarter USA.
I thank Susan and Andy for tipping me off to remarks made earlier today in which Sheila Bair Says “Too Big to Fail” Strategy for Financial Institutions Must End. The administration and other political pundits are trying to make the case that the Federal Reserve should serve as the systemic risk regulator. In my opinion, Sheila Bair should occupy that role. There is a major political battle developing over this turf. Make no mistake that how this battle plays out will have deep and longstanding implications for our financial system as a whole and for individual consumers. (more…)
Housing Index Revisited
Posted by Larry Doyle on March 18th, 2009 1:11 PM |
A week or so ago, I introduced two indexes that track the outlook for housing in our country. The S&P/Case-Shiller Index is released on a monthly basis. The ABX is an index that can be traded daily by institutional money managers and thus allows them to reflect their opinions on the outlook for housing. The ABX is a very broadly defined index that tracks housing by the underlying year of origination of the mortgage.
Yesterday, the monthly housing starts number surprisingly jumped 22%. The government program TALF (Term Asset-Backed Lending Facility) to restart the consumer finance markets is set to launch next week. Hopefully that program will bring added liquidity to our consumer finance markets and support housing as well. The mortgage modification program to support housing is underway. (more…)
Let’s Revisit Europe: The Weakest Link
Posted by Larry Doyle on March 17th, 2009 5:15 AM |
I thank our loyal reader in Michigan, Mr. Fiscal Liberal, for sharing with us a piece written by Simon Johnson, the former chief economist of the International Monetary Fund, a professor at the MIT Sloan School of Management, and a senior fellow at the Peterson Institute for International Economics.
Mr. Johnson writes about the growing problems in Europe. I am hard pressed to see how the European situation, both in the East and West, can not end badly. There are too many economies that are effectively insolvent or on the brink of insolvency. I believe this is the region of the world which will experience increased economic strife leading to social unrest and political change. Can the problems in Europe be contained given the massively interconnected world of global finance?
Thank you again FL for sharing this very enlightening piece from Simon Johnson!!
G-20s Real Agenda Should be Saving Europe from Itself
By Simon Johnson
Last Updated: 10:28AM GMT 16 Mar 2009The media coverage of the G20 finance ministers meeting this weekend was dominated by the apparent battle between those who support more fiscal stimulus and those who want to impose more regulations on the financial system.
This, we are led to believe, is the big debate facing the full G20 heads of government summit early next month: the US is pushing for a bigger global fiscal stimulus (2pc extra government spending from everyone, to be monitored by the IMF), while the continental Europeans are holding out for greater regulation. Gordon Brown is trying hard to cast himself as the broker for any apparent deal. (more…)
What About Commercial Real Estate
Posted by Larry Doyle on March 16th, 2009 12:31 PM |
On my radio show last evening, I touched on some of the pressing issues facing our economy and, in turn, our markets. These issues include residential housing, municipal finance, automotive, and commercial real estate. While the first three issues seem to get a wealth of very personal and humanistic coverage from the media, the world of commercial real estate seems much more opaque. The site of large office buildings, suburban shopping malls, upscale hotels, warehouses, and apartment complexes do not evoke the level of human emotion involved in a foreclosed home, municipal layoffs, or factory closings. That said, the problems in the commercial real estate industry should generate just as much concern if not more. Why?
These commercial properties are the glue in our entire world of global finance. While the development of the commercial mortgage-backed securities market brought a large amount of liquidity to this sector, the shutdown of that market has just as quickly sucked the oxygen right back out. What has happened as a result? The lack of a transparent market has caused an overwhelming lack of liquidity and as a result properties are not trading. Why? The disparity between perceived value from the buyers’ and sellers’ perspectives is so wide that we could drive that proverbial Mack truck through it. (more…)
Mortgage Modification Guidance
Posted by Larry Doyle on March 14th, 2009 12:00 PM |
There is little doubt that there was massive fraud perpetrated by unsavory and unethical mortgage brokers during the housing boom. I do not mean to paint all mortgage brokers with the same brush. As with any industry, there are a tremendous number of highly ethical people working hard to make an honest living. Regrettably, not everybody falls into that camp.
Our economy would be well served if both local and federal authorities worked harder to expose the criminals in the system, indict them, prosecute them aggressively, and make them pay a very stiff price for their actions.
Not too surprisingly, some of the same ilk that wrote fraudulent mortgages are now populating the mortgage modification industry. People need to be exceedingly careful in engaging those who seem to want to help them modify their mortgage. (more…)
How Do We Track Housing?
Posted by Larry Doyle on March 12th, 2009 7:07 AM |
At the core of most, if not all, of our economic problems lies housing. I do not need to replay the tape of low rates, shoddy underwriting, and Wall Street securitizations that all played a dramatic role in creating a bubble the likes of which we have never seen and hopefully never will again. All that said, housing is an enormous market with a wide array of factors impacting it. How does one track it? Are we supposed to rely on our local brokers telling us things feel better? Should we ask contractors if they are bidding on jobs? Dare we rely on our local or national media outlets to provide their expertise and pandering? If we did, housing may have bottomed 14 different times in the last 10 months. In all seriousness, how can we track housing? Welcome to Sense on Cents.
There are two indexes that have developed over the last few years and are enormously respected by market participants. One index, the S&P/Case-Shiller Home Price Indexes, is released on a monthly basis. This index tracks a variety of regions in the country but not every region. Still, all things considered, this index is widely watched as a reliable indicator of health in housing. The index is typically released toward the end of each month. The most recently released report was on February 24th, A Look at Case-Shiller Numbers, by Metro Area. In this report, all indications are that housing has yet to see any support. (more…)
