Friday, November 21, 2008

Meanwhile, what are the bankers doing?

Hey, re-read my post from yesterday. Please. I agree with you. The Big Tois in De-trois don't derserve a bailout. But deserving don't got squat to do with it. Thursday I opined, with some juice from novelist, poet and rare public intellectual (he'd die if uttered the p-word no doubt) Professor Condrescu that presents a once in an era opportunity to transform an industry...even a nation. Tantamount to a new industrial revolution. What could be more fun, fanboys and girls? After all, back when I was a little boy people told me there'd be flying cars that ran clean. But you party poopers said no. I'm crazy. Hmmm. Like the all the finance and marketing and commerce doges and shamans have done better? Well what they did accomplish was pulling the wool over Congress's eyes and kept The Great Changer (Barack) silent on transforming our banking and investment sectors. Ironic, as even right wingers are committing blasphemy, i.e. Mike Huckabee on the record stating that the market should "serve the people, not the other way around."
As that quote digs into your brain like the earwig of myth, walk with me to the halls of finance and see what they're doing with your tax money. Oh, that's right. We don't know. At least Ford, GM, Chrysler had the good sense to pledge adherence to strings and some transparency.
Ready? Here's the awful ruddy rub, per Senator Christopher Dodd on NPR. Read and listen and then convince me on why we shouldn't restructure the automakers.


Chicama Vineyard said...

I also agree about the car makers but agree with your message of "transformation," by the way.

The lack of oversight is not just Bush's fault or Paulson's and I am glad you point that out. The President-elect should make some statement now. But the Congress is to blame as well for this mess. I will give you a real world example. My daughter loaned my granddaughter $50 so she could pay a speeding ticket. She is only 17 and this is her first ticket. She took the $50 and went to Aldo shoes at our local mall. When my daughter and I gave her the third degree she cited the example you and Sen. Dodd give with banks! I know this is a whimsical illustration but it is still a good one.

Anonymous said...

SoCal 82Tiger Says:

Professor - You are going to put your faith in the words of Chris Dodd - The Senator who along with Mr. Frank did the most obfuscation to keep more Fed Oversight Out of Fannie Mae & Freddie Mac? The Senator who got the sweetheart below market-rate home loan through Countrywide? Perhaps the most stupid man to head a Senate Committee in US History?

JFS&G - Isn’t it funny an ignorant corrupt old SOB like Dodd stays in office while the ONLY senator to raise a stink 2 years ago about oversight on Fannie Mae/Freddie Mac - Shays, is not re-elected???

We really do elect and get the government we deserve, and when everything goes to Sheeyaattt we have no one to blame but ourselves....

Professor - people need to stop feeling and start thinking their way to making better decisions about themselves and this country. Until that day happens we’re all F'd

Hathor said...

I am so tired of that Freddie Mac and Fanny Mae scenario. there is not enough of those loans out there, to account for the $700,000,000,000 soon to be $5,000,000,000,000 bailout. Look at those 12 zeros.
Poor people sure didn't make Derivatives or Credit Default Swaps, this crap wasn't capitalized. The lack of oversight in the mortgage market didn't do the most damage to the economy, it was greed. It was like a gambler thinking his next bet would hit the jackpot. They never thought they would ever have to pay out on those derivatives.

Lisa said...

I was just about to! They are getting over like fat rats. Detroit just doesn't have better lobbyists! Thank you Nat Turner!!! Silence, SoCal!!!

Anonymous said...

I don't know if Barack is going to steer a different course for us. I'm a bit pissed.

Anonymous said...

SoCal 82Tiger Says:

@ Heather & Lisa –

You cannot "silence" a voice of dissent - You can disagree with it, ignore it, or try and better argue it so to change hearts and minds... BUT Silence... That makes you no better than the fascist, authoritarians, & totalitarians you claim to hate!!!

Re - Your observation that there are not enough of “those loans” out there? What type of loans do you mean???

· Loans to crass Real Estate Speculators who were leveraged beyond their means?
· Loans to people of limited economic means who could not afford and did not understand the terms of their mortgages and so could not afford them as soon as they began to re-price within as soon 30 days after getting their loans?
· Loans of 100% or more LTV to buyers who effectively had no financial stake to stay with their new mortgages when their payments adjusted up (in effect just making them another type of renter)?

As a part of the financial services industry I can assure you that there are more than enough questionable loans to screw up Fannie Mae & Freddie Mac… It doesn’t take as many zeros as you think to throw our financial system into chaos!

Historically Real Estate loans are made with the assumption that they NEVER go bad – The loss ratio for 1st Mortgages has consistently remained at 1% OR LESS. With anywhere between 10 to 20% of loans made over the last 3 years now projecting to go bad, the income made from the remaining good loans is not enough to cover that amount of loss.

BTW - Going forward, if you want to keep mortgage companies honest, then require them to portfolio (randomly keep/service in-house) 10 to 20% of the loans they originate. Forcing them to fully service part of loans they create means that can’t rely on hiding problem loans by pawning them off to Mae & Mac, or even another private investor. Yes it would cost them/us more money for such a system, and it could mean less loans for those with lower incomes or who are financially challenged – BUT, it forces mortgage lenders to act as “honest brokers” on every loan they create because now by random selection they are responsible to keep, service, and successfully maintain a solid portion of the product they create.

And you are right Fannie Mae and Freddie Mac did not create a world of swaps and derivatives; they existed long before in the world of finance… WHAT & WHERE Fannie Mae & Freddie Mac failed was in adequately ensuring the safety, soundness, and security of the mortgage loans they were guaranteeing when they purchased them. By permitting Mae N Mac to ignore existing conforming loan purchase requirements when buying up questionable loans along with traditionally sound conforming loans WE created a radical change and a bifurcation of their loan purchasing/guarantee policy. With the exception of the last few years, ANY type of non-conforming mortgage loan was required to season with good payments for a period of from 2 to 5 years and prove itself a quality loan placement eligible to Mae or Mac for purchase & guarantee.

Was greed an issue? Certainly! BUT, it was everyone’s greed – Real Estate Speculators, Mortgage Agents, Brokers, and Bankers, Government Regulators & Politicians, AND WE (Re: the people) who bought into the hype (at every level) of jumping on a train of slick fast-talking salesmen promising everyone easy home ownership with no need for financial commitment and requiring little understanding of the terms, conditions, and consequences to what people were signing themselves to….

Unknown said...

The socialist illuminati is calling for this bailout.. without any thought of what could REALLY happen if we just let capitalism work things out.. The best companies might really stay in business and that would make other companies have to be more thoughtful and innovative. I have faith in this system.. If we do this now, where does it stop?