Reactions to story from The New York Times

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  THE FINTAG NEWSLETTER @ 08 September 2008

  http://fintag.com/archive/2008/09/08/
  86 days ago in FiNTAG: Hedge Funds: Search: Daily News: Gossip: Opinions · Authority: 80

  FINTAG COMMENT Momentous. Like the assassination of JFK, Jimi Hendrix at Monterey or 9/11, yesterday is a defining moment in post second world war history. The bail out and nationalization (it is temporary, apparently, but wasn't Northern Rock too?) of
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  [GSEs Get A Seizure] Its About Time

  http://matrix.millersamuel.com/?p=1869
  86 days ago in Matrix | Interpreting the Real Estate Economy · Authority: 1,003

  It finally happened. The GSEs are no longer private corporations. The bailout is finally here. I called this bailout on October 5, 2005 and was teased or ignored. History teaches us we forget history. I have been lamenting (whining) for the past several
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  Causes and Cure for the Credit Crunch

  http://economicliberty.net/plan/2008/10/causes-and-cure-for-...
  54 days ago in Plan and Counterplan · Authority: 1

  This crisis is often complicated way out of proportion to what is necessary. It is really quite simple. This article makes a nice rundown, and I will give you some basic bullet points. Then I will attempt to convince you that the best medicine is to let the market detox. Causes The crisis was triggered by a collapse in housing. There was first a bubble - with housing prices rising and rising and rising and everybody knew it couldn't last - and then it popped. Crash. And then - oops - it took down all related lending, since so many firms had a major portion of their lending wrapped up with mortgages. Hence, credit crisis. Now, what could have caused the bubble and the pop? Well, before jumping right to culprits, lets remind ourselves what drives prices up and down: supply and demand. So, for prices to rise, there must be greater demand than supply (lots of bids on few houses) and for prices to crash, there must suddenly be greater supply than demand. OK. So what could have gotten supply and demand out of whack? In normal times, if demand is high and prices rise, more suppliers will come in, prices fall again; but here the supply never caught up with demand. Why? Supply and Demand Several policies and programs have been put into place to encourage home ownership, but which drove a wedge between supply and demand. These include: (1) Fannie and Freddie which ensure cheap mortgages as they buy bad loans back from places like AIG and which dominate at least half of the housing market, drove reasonable lenders out of business, and made poor lending and bad loan packaging possible by being a massive customer (read: subsidy) to places like AIG. Demand: Much more demand by the lower income buyers, demand for bad loans by gov. Supply: Private market crowded out by Fannie/Freddie except those making loans that gov. buys (2) The Community Reinvestment Act which forces lenders to offer cheap loans (with quotas) and which, together with Fannie and Freddie, led government to create the securitized secondary mortgage market, and which also drove potentially profitable lenders out of business, expanding Fannie and Freddie's dominance. Demand: Much more demand by the lower income buyers, demand for bad loans by gov. Supply: Private market crowded out again, only the few big ones can meet gov. quotas (3) Fed-induced low interest rates which made mortgages more affordable, tax write offs and personal tax credits for mortgages, etc. Demand: Much more demand by all buyers Supply: Supply contingent on interest rates staying low, otherwise defaults Now, what was the point of Fannie and Freddie? Their charter states that it is to ensure loans to those who cannot normally afford them by buying low-income private loans up on a secondary market. This is not a recipe for profit maximization, it is a recipe for excessive risk. Now, it is non-profit insurance - risk sharing - in theory. If that could work. But it can't for several reasons. Moral hazard and plain old demand will go up, when rates are this low, so losses grow. Government has actually fed the demand of low income buyers, not only by offering them cheap housing but also by driving interest rates down, offering tax credits, etc. In fact, they kept expanding and expanding further into low-income and sub-prime lending, in the dream of reaching 70% home ownership. Meanwhile those who would offer low-income loans at rates which would allow profit are all crowded out of the market. The only ones left who can make a profit are those who depend on Fannie and Freddie to buy their risky loan packages. So long as Fannie and Freddie stay in business, they are OK. But Fannie and Freddie can only appear as if they are above water so long as housing prices keep rising, so long as fuel keeps going on the fire of demand. But they are going deeper and deeper and crowding out everything around them. They are swollen with risk and poised right in the center of the credit market, waiting to explode. Why did it all come a head now? Because: Between 2005 and 2008, Fannie purchased or guaranteed at least $270 billion in loans to risky borrowers — more than three times as much as in all its earlier years combined, according to company filings and industry data. Boom. Cure I keep stressing that we understand what caused the problem. The reason for this is that (as the first link above mentions) the cure that we are putting in place is actually more of the same-- more of what caused the crisis. If the crisis was caused and fueled by these policies, why do we expect them now to save us? Fannie and Freddie caused the crisis by not pursuing profitable business strategies - by risky lending and loss-making pricing - and yet, Paulson promises that to cure our ails he will make sure that Fannie and Freddie stop worrying about being profitable. Put the homeowner first. Fannie and Freddie caused the crisis by expanding into the sub-prime market, the answer to foreclosures a year ago? Expand Fannie and Freddie's mandate for low-income lending. Today? More of the same. Fannie and Freddie caused the crisis by subsidizing a risky secondary market for mortgage-back securities. Our initial response a year ago? Buy more bad loans. Our current plan? Buy more mortgage backed securities (bad loans). The fed fueled the fire with easy money. Answer? Easy money. This is classing government intervention feeding on itself. What is the right cure? Leave it be. Let the market restructure. Don't feed the crisis. If you think it will hurt, you may be right. But won't $700 billion in transfer from taxpayer to government also hurt? Won't feeding the loss-making machinery of socialized companies, which will need to be bailed out again and again hurt? Won't subsidizing failing companies which drive out regular business hurt too? There is no pain-free answer. But there are cures that hurt because they detoxify, and there are cures that feel good right now, like a mamosa over breakfast after a drinking binge, but fail to actually solve the problem. In fact, they make it worse. And the final detox hurts more. This crisis, the more I learn of it, the more it reminds me of the transition in Russia. We have to cut the strings. We are being made a muppet.
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  Download a copy of the Wall Street bailout legislation

  http://www.comitini.com/newsreal/pdf/20080928bailout_text.pd...
  64 days ago in NewsReal · Authority: 1

  Download a copy of the Wall Street bailout legislation This is a complete draft of the 101 page bill (.pdf 192 kb) as released on Sunday 9/28/2008. The federal government would provide up to $700 billion in a rescue of the nation's financial system, according to lawmakers in Washington. The leadership of both parties in Congress have urged their members to ratify the legislation. - comitini.com Golden parachutes limited, not ended, in bailout bill Advocates of financial rescue trumpet end to big exit packages for execs. But many leaving troubled firms that get help will still get to take a bundle with them. - CNN Main Street turns against Wall Street A populist backlash is changing America's political climate. Inflamed by the financial crisis and bailouts, a form of class warfare could haunt business leaders for years to come. - CNN McCain's economic bailout plan revealed to nation Okay, so this one is political satire and a just a little off topic; but we could all use a laugh amongst the economic news. - The Onion Talks Implode During Day of Chaos; Fate of Bailout Plan Remains Unresolved “If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room. Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Senate banking committee, denounced the session as “a rescue plan for John McCain,” and proclaimed it a waste of precious hours that could have been spent negotiating. - NYTimes.com The New Housing Law: What's In It? All homeowners who do not itemize their income taxes can deduct between $500 and $1,000 from their 2008 federal taxes. Anyone buying a first home between April 9, 2008, and July 1, 2009, will receive up to $7,500 in federal income tax credits. The bill includes an estimated $15 billion in housing tax breaks, which became effective Aug. 1. - CNBC.com Bush delivers dire warnng President Bush showed up just in time to do what he does best, use fear to push an agenda; "our entire economy is in danger" from market problems. He warned that the nation could experience "financial panic" and ultimately "a long and painful recession" if Congress doesn't move quickly. - Wall Street Journal Bailout Pact Gains Momentum Amid Push for Tough Controls Democratic leaders hope to nail down details of the measure early Thursday, ahead of an extraordinary summit meeting in the afternoon at the White House, which will bring together Republican and Democratic presidential nominees, along with Mr. Bush and top leaders from Congress. - Wall Street Journal Bernanke: Wall Street crisis threatens to drag down economy Federal Reserve Chairman Ben Bernanke was back on Capitol Hill Wednesday, warning that the current financial crisis is the most significant in more than 60 years, and that even tougher times are ahead without quick Congressional approval of a controversial Wall Street bailout. - CNN Bernanke Moves Closer to Rate Cut as Risks to Economy Intensify Federal Reserve Chairman Ben S. Bernanke moved closer to cutting interest rates, signaling that risks to U.S. growth are greater than policy makers saw them just last week. - Bloomberg.com Unblinking Eyes, for $20 Million, at Freedom Tower The contract for the electronic security system at The Freedom Tower iis worth $20,407,680. The commissioners of the Port Authority of New York and New Jersey approved a contract in that amount with Ingersoll Rand Security Technologies. - New York Times Blog Bloomberg orders a half billion dollars in cuts Confronting a rapidly worsening fiscal situation, Mayor Michael R. Bloomberg’s budget director ordered agency directors to cut spending by a total of $1.5 billion over two fiscal years, starting with the current fiscal year. - New York Times Bloomberg: New York City May Raise Property Tax Mayor Michael R. Bloomberg, worried about the effects of the global financial crisis on New York City’s economy, said that his administration is considering imposing a 7 percent property tax increase on homeowners in January. - NYTimes.com Ground Zero excavation— Scenes From the Ice Age Those who say the World Trade Center site is changing at a glacial pace have no idea how right they are. Excavations at the World Trade Center site have offered scientists a rare window into the deep past from about 20,000 years ago - NYTimes.com Mortgage Relief Programs Aren't Helping Much As the Senate continues work on its $15 billion mortgage relief bill next week, states will be keeping a close eye on one measure: it would authorize them to issue an additional $10 billion of tax-exempt housing bonds to fund mortgage programs. Up until now, efforts by states to help distressed homeowners refinance have had negligible results. The new measure would give them additional tools. Still it's unlikely to help them refinance large numbers of borrowers with subprime mortgages. - Wall Street Journal Bush Officials Urge Swift Action on Rescue Powers The Bush administration, moving to prevent an economic cataclysm, urged Congress on Friday to grant it far-reaching emergency powers to buy hundreds of billions of dollars in distressed mortgages despite many unknowns about how the plan would work.Treasury Secretary Henry M. Paulson Jr. said the upfront cost of a rescue proposal could easily be $500 billion, and outside experts predicted that the bill could reach $1 trillion. - NYTimes.com Paulson Argues for Need to Buy Mortgages An enormous, taxpayer-financed program to buy up bad mortgages and other distressed debt is necessary to protect the savings and aspirations of millions of Americans, President Bush and Treasury Secretary Henry M. Paulson Jr. said on Friday. - NYTimes.com Treasury to Guarantee Money Market Funds The federal government took two aggressive steps to restore confidence in money market funds, which consumers have long considered to be as safe as bank savings accounts, but which have come under increasing stress in the current market turmoil. The Treasury said it would back the funds temporarily up to $50 billion to ensure their solvency. - NYTimes.com US Treasury steps in for money market funds The US Treasury Department on Friday morning said it would set up a temporary insurance program for the US money market mutual fund industry as part of its efforts to address the financial crisis - FT.com Shares surge on US bail-out plan Financial stocks have gained the most from the rise in confidence on the markets. In London, the Royal Bank of Scotland and HBOS rose as much as 50%. Moves to restrict short-selling in the US and UK also helped to boost financial shares. - BBC News Pain Spreads as Credit Vise Grows Tighter Lenders have become even less willing to part with their money, further crimping budgets and family spending. An economy propelled by easy credit for more than a decade is fraying as credit disappears. - NYTimes.com Wall Streets Day of Reckoning: Turmoil in the Global Market - knowledge@wharton As Fears Grow, Wall St. Titans See Shares Fall Even Morgan Stanley and Goldman Sachs, the two last titans left standing on Wall Street, are no longer immune. - NYTimes.com A New Role for the Fed - Investor of Last Resort The mighty Federal Reserve is being stretched to its limits, both in the range of problems it is being asked to fix and in its financial firepower. - NYTimes.com Bank of America Chief Saw Merrill Purchase as a Rare Opportunity The merger gives Bank of America a footprint in almost every facet of the banking business and vaults it into the upper tier of the nation’s financial institutions. - NYTimes.com » newsreal archives » about newsreal search the newsreal

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