Home sweet loan.

“The home-ownership policy/mandate will go down as one of the biggest failed social engineering experiments in modern times.  The costs are staggering and the returns are negative to date.  I have to ask myself why would this even be pursued?  There is evidence that home ownership fosters community growth, lower crime, etc, but there are also big downsides like debt burdens and lack of mobility – as in moving to where the jobs are.

Lest I be accused of only being able to point out what’s wrong, I’ll offer a much better goal for a nation to aspire to: a top-ranked educational system.” -GMT

Fannie Mae / Freddie Mac etc. buy loans from approved mortgage lenders and create mortgage-backed securities that comprise those loans and, for a fee, carry Fannie Mae’s guarantee of timely payment of interest and principal. Long story short, the GSE’s goal is to use a implicit govt guarantee to secure cheap financing for Americans to buy homes.

Freddie/Fannie (FF) set guidelines for the loans that they will insure, i.e. they understandably did not loan to sub- prime borrowers. Well, that all changed around 2005.

Following their mission to meet HUD government goals and to improve home ownership of low and middle income families, GSE relaxed these loan guidelines. They also started to not only guarantee these securities for a fee, they started to buy and hold mortgage debt to increase profits.

“Although Fannie’s and Freddie’s core business is their role guaranteeing payments to mortgage investors, for years they earned additional profits and generated controversy by maintaining a large investment portfolio filled with mortgages and related securities. ” -WSJ

Side note: late 2004, Fannie Mae was under investigation for its accounting practices. The Office of Federal Housing Enterprise Oversight released a report[39] on September 20, 2004, alleging widespread accounting errors, i.e. they were cooking their books for profit. 

When the Treasury Department took over Fannie and Freddie last year, one of the requirements they set for the companies was to begin shrinking their portfolios to limit the taxpayer exposure to the toxic garbage on their balance sheet.  Makes sense. The idea was to rein in the companies’ size and growth as they were bleeding cash. But last Thursday the Treasury reversed direction and decided the companies won’t be forced to sell mortgages and could even buy mortgages on the market.

The Treasury also wiped away the $400 billion cap on the losses.

Hmmmm. Wonder why they did that…

The agencies now have greater flexibility to pursue more expensive loan modifications including writing down loan balances, further transferring losses to tax payers. Yippie!

“Credit Suisse says the firms could use their increased capacity to even purchase delinquent loans from pools of mortgage-backed securities that they guarantee. Fannie and Freddie already purchase defaulted loans as they modify them under the administration’s loan-modification program, but the additional breathing room means it is now a ’slam-dunk for them to speed up’ purchases of delinquent loans, Mr. Swaminathan said. New accounting rules that take effect next year also could make it more cost-effective for the companies to buy out bad loans and keep them in their investment portfolios.

‘It’s created a government-purchasing facility other than the Fed.’”

A Freddie spokesman said the company will continue to use its investment portfolio as “an important tool” to “keep order in the housing and housing-finance markets.” These entities own almost every mortgage out there. “The administration is responsible for backing nearly nine in 10 mortgages.” This means they are on the hook if almost every mortgage out there defaults.. FF have essentially been nationalized. But why are they not reported on the Treasuries balance sheet. Why not?

The Govt has a budget deficit and debt level that could make the pope blush. Therefore they have conveniently left FF and their $4 Trillion in obligations off the balance sheet. The Govt criticizes the bank for off balance sheet shenanigans and currently have the biggest off balance sheet exposure on the planet. Hypocrites. FUCK ME.

RIght now the Govt determines which Americans can and cannot get mortgages, the rate of interest on those mortgages and the overall home values.

That scares the fucking shit out of me.

Not necessarily to do with the housing market but the guys at Beacon Hedge fund get it:

“Any healthy system needs a way to correct error and remove waste. Nature has extinction, the economy has loss, bankruptcy, liquidation. Interfering in this process lengthens feedback loops. Error and waste are allowed to accumulate, and you ultimately get a massive collapse.  Capitalism is primarily attacked by two groups: utopians who wish to impose a more “compassionate” system, and political capitalists who want to enjoy the fruits of success without bearing the pain of failure. They use the coercion of the state to gain privileges, at the expense of everyone else.  As a country we’ve become less tolerant of economic failure. The result has been a series of interventions, such as meddling in the credit markets, promoting homeownership and creating a variety of safety nets for investors. Each crisis leads to an even greater crisis. The solution is always greater doses of intervention. So the system becomes increasingly unstable. The interventionists never see the bust coming, then blame it on ‘capitalism.’ But Capitalism would have allowed those who essentially bet wrongly to fail, instead of bailing out people with friends in high places.

The little guy actually has been crushed. Money has essentially flowed into the political economy at the expense of the real economy. The little guy is always going to be the last one in the soup line. So he will get a bone tossed to him, like cash for clunkers. But if you are Goldman Sachs or if you have got essentially the red bat-phone to Washington, D.C., you are first in line.  The central planners have already spent $3.15 trillion on various bailouts, credit backstops, guarantees, etc., and given approximately $17.5 trillion of government commitments, etc., while allowing many of these institutions to remain in place, with the same people running them.

We don’t believe in a central bank. The idea that banks can speculate with essentially free money from the [Federal Reserve], which ultimately is the taxpayer, and that when they lose money the Fed bails them out and then passes that invoice to the taxpayer — that whole model is broken and needs to go away.

We need to address fractional-reserve banking, which is causing the instability. We have essentially socialized deposit insurance and prevented the bank run, which used to impose discipline on this unstable system. At least it had some check on those who were acting most recklessly. Until we address the root of the problem, we are going to have a series of crises, greater responses and intervention, and more bubbles — and the system will keep perpetuating itself.”

Bank of Amerrill Lynch. Something stinks in Charlotte

BofA’s senior executives have been accused of violating securities laws by not releasing the growing losses at Merrill Lynch to shareholders. In August, Rep. Kucinich sent Mary Schapiro, the Chairman of the Securities and Exchange Commission, a letter urging her to investigate the potential violation.

The govt should go after the $20 billion paid to Bofa to complete the merger.

I do not believe I am the first to propose the below idea, and I’ m certain a few smarter folks have been debating this on blogs somewhere on the interweb, but this is how I see the ML BOFA merger going down.

Ken Lewis threatened to walk away from the deal over mounting losses at ML unless the US government provided extra capital. The deal closed on January 1 after federal officials pledged their support. This was all posturing by Ken Lewis.  I feel the losses were fabricated as a ploy to sway the govt to pony up a shit load of tax payer dollars. By agressively writing down assets, particulary in the Mortgage and CDO book, BofA was able to make the financial condition of ML far worse than it actually was.  - the US Govt was duped into paying $20 Billion as well as protection against losses on $118 billion in troubled assets.   You tell the the Fed and the Treasury that you need some cash or the world will end and the check book opens wide.. Oh lordy, take my money, just make it stop.

Idiots.

Bank of America’s transition team arrived at Merrill  and bout 200 employees set up on one floor of Merrill’s headquarters, and Bank of America Chief Accounting Officer Neil Cotty moved into an office on the 32nd floor.

The group became involved in nearly every aspect of Merrill’s operations. By the end of November, Merrill’s losses were ballooning because of deteriorating market conditions and write-downs on various mortgage-related investments.  Still, the daily emails sent to executives at both companies summarizing the deal’s status said “status green”

Neil Cotty (BofA’s chief accounting officer) played an active role in preparing accounts and wielding influence with Merrill executives – who were set to report to him after the deal closed.

With Mr Cotty’s involvement in December, the people familiar with the matter said, Merrill took a fourth-quarter writedown of $1.9bn in leveraged loans and a $2.9bn reserve against an exposure to derivatives linked to asset-backed securities.

Mr Cotty also gave his blessing to a $1bn writedown of credit default swaps involving investment grade companies. The markdown of a position on the “high vol 4” index transformed a gain of $100m into a loss of $900m, said a source familiar with the matter.

In a statement issued by BofA, Mr Cotty said: “While BofA had access to Merrill’s financial information in the fourth quarter and had input into many accounting policy and valuation issues, Merrill management was responsible for these decisions regarding the marks and other valuations.”

Now ML almost certainly was not keen on BofA executives coming in, marking down their books and telling them their assets were all pieces of dog shit.  So BofA needed to soothe ML employees by assuring them big fat bonuses in spite of the “reported” losses.  ML got paid by BofA and BofA got paid by the feds.  Everybody is happy.

Now BofA needed only to get the shareholders to approve the merger – even with the losses at ML which would soon be disclosed.  BofA did not want the lossed at ML to spook the shareholders – so they simply decided not disclose the losses to the shareholders.

BofA understood the implications of  releasing the  ”Merrill losses” to BofA to shareholders…  November 20, Joe Price, Bank of America’s CFO, had a meeting with his attorneys about the question of whether to disclose the Merrill losses to Bank of America’s shareholders before the December 5 vote. On his copy of the November 12 “forecast” — the document that omitted any write-downs for November and December in the CDO portfolio — Price wrote that “Concluded [per] Tim [Mayopoulos] and Ed [Herlihy] that no pre “meeting disclosures are necessary.”

After the merger closed and the losses were reported shareholders wanted blood over the bonuses paid to ML employees resposible for the losses.  No problem, Bank of America pinned then ML CEO, Mr. Thain as the person responsible for distributing billions of dollars of bonus money despite Merrill’s huge losses.

A FT  article quoted a Bank of America spokesman saying that Mr. Thain had “decided” to speed up the payments. Bank of America “was informed of his decision,” the spokesman said. Mr. Thain says he wasn’t given a chance to review Bank of America’s statement, but that he would have strongly objected to it. On the morning the article was published, Mr. Lewis flew to New York to ask for Mr. Thain’s resignation” “The board blames you for the fourth quarter, and this is not going to work out,” Mr. Lewis told Mr. Thain -WSJ

“Bank of America’s spokesman says the merger agreement “allowed for the bonus payments to be paid, but did not require it.” – WSJ  Mr. Lewis set out to make Thain the scapegoat for problems related to the Merrill takeover. Mr. Thain says the bank’s statements have left the impression he was hiding information.

Chief Executive Kenneth Lewis agreed in writing that the bonuses could be paid before Bank of America’s acquisition of Merrill closed.
Here is the timeline

Since the deal closed on Jan. 1, almost all of Merrill’s top executives, including President Gregory Fleming and Robert McCann, head of Merrill’s giant brokerage force, have left.

First-quarter results at Bank of America showed Merrill had a profit of $3.7 billion, representing nearly 90% of Bank of America’s overall net income for the quarter.

Big fucking surprise…  Merrill’s assets miraculously appreciated from the levels marked by Mr. Cotty.

Fuck the disclosure lawsuit. Go after the 20 Billion.

Quote of the day

“My god you are dumb. Learn the fucking difference between parallel universe and time traveling in the same universe.” – JustSomeAsshole

Yes, Lost is back and the Aint It Cool News “talkbacks” are delivering the goods.

Don’t be retarded.

Let's get retarded in here!

This is the definition of the word “retard” according to Webster’s: to slow up especially by preventing or hindering advance or accomplishment.

Reportedly, last August at a liberal strategy session Rahm Emanuel, White House Chief of Staff, said that liberals who were planning attack ads on conservative Democrats over health care were “Fucking retarded.”

What’s the problem?

Moral Hazard cont…

(continued from here)

During one of my recent discussions with the brother-in-law, I found myself on a very irrational side of an argument.  I says- “Alex, since the Banks took tax payer funds those bastards should lend like the govt has asked”

Looking back, this was a horrible argument.  The Govt has no business telling private institutions how to run their business – whether this means making loans or fuel efficient cars etc – Those of you who disagree with me should visit the DMV on 34the st (or any Post office in Brooklyn).  The Govt has no business – in business period.  never mind the conflict of interests.

Ha, I just saw a BOA commercial.

“Bank of America – we just made 60 Billion in loans to help the community”

what the caption really should say:

“Bank of America – Dont hate us because of TARP – We still make loans to people who really don’t qualify for loans because Obama told us.  - these loans will be non performing almost immediately but we will try to package said loans into an ABS and sell it to the Govt via PPIP  (mortgages to FRE/FNE) – so really, the idiots watching this commercial are really making the loans”

Anyhow – So, if the govt invests in / bails out a private company do they now have “the right” to tell these institutions what to do / pay their employees etc..? Is this Capitalism?

What the fuck is Capitalism anyway?

The Grammys Got Me Thinking

I find it interesting that the “big tent” era of entertainment and popular culture lasted about fifty years. The time when everyone gathered around the TV to watch this or that, those big cultural moments are getting rarer and rarer. Superstars are a dying breed. It’s almost as if people that “follow” Beyonce or Kanye West or Lady Gaga or whomever are just another minority in the vast diaspora created by the internet.

In a way it’s reverted back to the time before mass communication happened; as it turns out, things like The Beatles on Ed Sullivan, etc seem to have been a specific function of mass communication going through it’s very early stages. Some people wax nostalgic about these widely-experienced pop culture moments as if that’s the way things should be, but really that era was brief and highly unusual.

As technology advances, we’re returning to a more “localized” experience, except the niches aren’t bound by geography. I like it.

The Dukes of Moral Hazzard

I know it’s hard for most to read a rant about such a heady topic from somebody who:

1-         Can hardly spell

2-         Spends his free time killing brain cells with beer

3-         Still idolizes Luke Skywalker

4-         Is unable to add or subtract without a calculator

Let me start by saying that by no means do I believe that our President or Govt or Ben Bernanke is intentionally harming the country or have hatched a diabolical plot with Socialist designs.  I do feel that Bernanke is an arrogant twat who thinks he can use the current crisis as a means or an excuse to change the rules to suit his needs and entirely change the roll of the Fed.   Obama is just a limp dick.  People don’t understand what the Fed is sposed to do in normal times much less how egregious their actions have been of late.  Even Paul Volker has mentioned the Fed’s actions have been borderline illegal. Removing private risk and placing it onto the shoulders of the tax payers is unacceptable.  The man should be arrested.

“Treason doth never prosper; what’s the reason? For if it prosper, none dare call it treason.”

Sir John Harrington, 1600 (circa)

Unprecedented fiscal and monetary stimulus programs have “come at the cost of significant increase of risk to sovereign balance sheets and a consequent increase in sovereign debt burdens that raise risks for financial stability in the future, We have transformed the banking crisis into kind of a sovereign solvency crisis by buying up a lot of private securities and auto companies and so forth,” We’ve dealt with the consequences of vaporizing $3 trillion of private demand in the U.S. by providing a lot of public demand.”  -IMF

My pal Joe got me thinking on Sunday when discussing the Fed.  He said something like “what would we do if we didnt have the ability to print money?”

This has been debated since our forefathers and long before central banks.  Central banking was brought in only after it was decided that it was easier to finance things, such as wars, by printing money instead of taxation.  What people still to this day fail to see is that printing money is just as good as increasing taxes. Instead of taking money out of your wallet, the Govt simply makes the money in your wallet worth less through inflation or the lack of de-flation.

IMHO If we didnt print money we would certainly have less booms and therefore less busts.  Printing money is bad. Not good.  Inflation is bad.  If you dont believe me go back to Germany 1923.  If Germany doesn’t suffer inflation we dont have the 3rd reich. No Hitler! No cool tunics or Camo helmets. (ok, maybe inflation has some pros)

But honest, inflation is very very very bad.  But you may have noticed we are not experiencing inflation now and the Fed is just printed truck loads of cash.  What gives?   I will discuss deflation later, but first —- BUBBLES

Printing money causes assets prices to inflate (assets such as investments/real estate are not included in the inflation/CPI figure)

BUBBLE BUTT BUBBLE BUT …

So, what the fuck is wrong with higher asset prices?  For those of you who slept through recent crisis allow me to present exibit A – the real estate bubble.  (I cant go into detail, but prices went up, (the bubble) prices went down, people lost jobs, the Fed saves the banks yada yada ydada…

Lets discuss the current asset bubbles – the equity and MBS (mortgage-backed securities)

Its important that you understand that Investments are a zero sum game (nobody pays DIV anymore). If Google made 133 Billion this quarter the stock would not move unless more people bought it than sold it. Simple.

The MBS market works the same way and we will spend the next 5 minutes (depending on how fast you can read) talking about MBS.

The MBS market has catapulted to nose bleed levels this past year.  The reason for this?  The obvious reduction in home foreclosures? the vast amounts of unemployed finding high paying jobs right?

Anybody Watch The Grammys?

I fast-forwarded almost the entire thing, because it was wall-to-wall sh*t.

Guns ‘n’ Roses – Use Your Illusion: The Double Album

It usually annoys me when I hear that knee-jerk response to double albums, “it would have been a great single album”. Cause it’s, you know, knee-jerk. However in the case of Use Your Illusion, the two-album simultaneous release by Guns ‘n’ Roses, it fits – sort of. In fact each of these “albums” has about a double-album worth of material on them, essentially adding up to a quadruple album. And to be honest, in principle, I have no problem with that. God bless all that try.

In G ‘n’ R’s case, though, there is a buttload of stuff that just does not work. Mostly, their attempts at epic balladry fall flat on their face, unless you count “Civil War”. I guess I appreciate the ambition, but sometimes it’s better to just leave well enough alone. For instance, I heard this acoustic demo of “November Rain” and it was a nice little song. But on Use Your Illusion, it’s grown into a monstrosity, complete with the inexplicable inclusion of synth strings – like Guns and f***ing Roses couldn’t afford an orchestra at that point?? Not that it would have helped much; the song would still be a bloated mess.

So anyway, I created my own version, a pared-down Use Your Illusion: The Double Album track list. Though I say “pared-down”, this is still a pretty sprawling and ambitious album, as it should be.

It gets rid of most of the inert and overblown epics, but there’s nothing to be done about the terrible-sounding and lurching drums, overripe production, nor the “too much Axl” syndrome that eventually led to Chinese Democracy (you really have to listen to Use Your Illusion on headphones to truly appreciate how pervasive Axl is on the album – it’s like there’s ten of him).

A few caveats: Bias may have played a part in an Izzy Stradlin’-heavy track list. For that I have no excuse; it is what it is. And I did include “So Fine” which is pretty bad actually, but something about it seems essential to me. Call me crazy. Another somewhat dubious inclusion may be “Get In The Ring” but sometimes attitude trumps taste. Also, the two epics I included, “Locomotive” and “Coma” have their faults (I even contemplated doing an edit of “Locomotive” but never got around to it), but are too cool to leave out.

1. Right Next Door To Hell
2. Dust ‘n’ Bones
3. Don’t Cry (original)
4. Bad Obsession
5. Double Talkin’ Jive
6. You Ain’t The First
7. Get In The Ring
8. Locomotive

9. Civil War
10. You Could Be Mine
11. 14 Years
12. Pretty Tied Up
13. So Fine
14. Bad Apples
15. Coma

I’m prepared to discuss this further.

Sailor Moon Redux

Life imitates art!

(See earlier post regarding diehard “Sailor Moon” fan)