tag:blogger.com,1999:blog-14963913.post4164582275876508080..comments2023-10-27T20:27:57.900-04:00Comments on Kid Dynamite's World: Hussman on Bernanke, Fannie and FreddieKid Dynamitehttp://www.blogger.com/profile/17475987512856310577noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-14963913.post-37007384551326569412010-07-31T02:24:15.899-04:002010-07-31T02:24:15.899-04:00Kid,
I'm wondering if banks have an obligatio...Kid,<br /><br />I'm wondering if banks have an obligation to report defaults. It would seem that ignoring delinquencies makes credit reporting unreliable and might cause a further contraction of credit. I think Tom Friedman in "The World is flat" concluded that the only advantage the US had was trust.oc bearnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-3825395820766636472010-07-30T16:48:16.546-04:002010-07-30T16:48:16.546-04:00SO clearly the USG guarantee on agencies is not pe...SO clearly the USG guarantee on agencies is not perpetual, and therefore is an option. That is, there is some probability that the guarantee will terminate, whether 2012 or otherwise. Therefore, it is not a question of whether at that point, the Fed will have engaged in fiscal policy, which they have not been authorized to do. By purchasing the agency securities, they have engaged in fiscal policy, because the securities have an iption compoenet affectign their price.<br /><br />The Federal Reserve has therefore engaged in ulawful activity.Blurtmanhttps://www.blogger.com/profile/04997520846655923035noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-40038776416989756382010-07-30T08:04:30.093-04:002010-07-30T08:04:30.093-04:00OC bear - i've written about that topic before...OC bear - i've written about that topic before - about how banks are trying to avoid foreclosures because it means they have to take the loss. Bank accounting gurus criticized me, shouting "you idiot - as soon as borrowers become delinquent then banks write down loans."<br /><br />that's mostly true in theory - reggie middleton's article alleges that it's mostly not true in practice. also, the other problem is that there are tons of people who are way underwater who haven't YET defaulted but will.<br /><br />i don't know if the banks have no choice but to pretend that the worst is behind us in housing, but i have very little doubt that things cannot get much better in the near future for housing: down is the only way to goKid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-12608849785209098862010-07-30T01:48:58.108-04:002010-07-30T01:48:58.108-04:00Kid,
Can you render an opinion on this.
http://w...Kid,<br /><br />Can you render an opinion on this.<br /><br />http://www.zerohedge.com/article/new-spin-bank-fraud-banks-defrauding-their-invesors-auditors-and-regulators-which-also-helps?source=patrick.net#main<br /><br /> There seems to be documentation, but I just can't believe that its true. Even with the changes in accounting rules don't these guys have an obligation to report credit problems or what good is any kind of credit score.oc bearnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-15998497613338665912010-07-29T18:21:06.793-04:002010-07-29T18:21:06.793-04:00GYC: http://www.calculatedriskblog.com/2010/07/sl...GYC: http://www.calculatedriskblog.com/2010/07/slam-dunk-stimulus-ms-missing-something.htmlKid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-45536116527060294862010-07-29T18:07:53.194-04:002010-07-29T18:07:53.194-04:00How does this tie in with word all FNM/FRE mortgag...How does this tie in with word all FNM/FRE mortgages will be refi's to 4.5% all at once?<br /><br />I wish I were smarter.EconomicDisconnecthttps://www.blogger.com/profile/02802078645713106743noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-41117094398479176552010-07-29T16:59:52.486-04:002010-07-29T16:59:52.486-04:00"if congress decides to restructure the GSE d..."if congress decides to restructure the GSE debt then the fed will be printing money withough congressional consent."<br /><br />By moving first the Fed has put the Treasury/Congress in a position where the Feds actions are dictating fiscal policy. By assuming this debt prior to the actions they tie the hands of congress where they cannot restructure without the fed losing money. If you replace the "fed" with "china" you can see how one entity by acting first can force the second's hand.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-946925724269021762010-07-29T11:59:50.381-04:002010-07-29T11:59:50.381-04:00CuriouserCuriouserTransor Znoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-71671073231882816812010-07-29T11:57:19.480-04:002010-07-29T11:57:19.480-04:00Kid, here's a March 2010 Housing Wire story th...Kid, here's a March 2010 Housing Wire story that might shed some light on this:<br /><br />http://www.housingwire.com/2010/03/08/investor-uncertainty-surrounds-frank-remarks-on-agency-mortgage-debt-4<br /><br />Barney Frank:<br /><i>“Please don’t think this is federally guaranteed. I don’t think it is. I don’t think it should be. I don’t feel any obligation to bail you out,” he told Bloomberg.<br /><br />By mid-day he issued a statement clarifying that "Fannie and Freddie debt [does] not have the same legal standing as Treasury" debt. He also said he supports the Treasury standing "fully behind the terms" of its unlimited guarantee of agency maturing inside of 2012.<br /><br />Then, in a CNBC interview, Frank clarified that agency debt purchased prior to conservatorship of the agencies is different from debt purchased during conservatorship.<br /><br />This view, however, is "inconsistent" with the Treasury Department's unlimited support for senior and subordinated debt outstanding through 2012, according to commentary out from RBS Securities, a wholly owned subsidiary of the Royal Bank of Scotland (RBS).</i><br /><br />http://www.housingwire.com/2009/12/29/viewpoint-treasury-updates-its-gse-support-and-the-mainstream-misleads<br /><br /><i>Swaminathan at Credit Suisse, in a note written over Christmas weekend, similarly saw the risk as small: <b>“The only way GSEs would need to tap more than the $400bn capital line [authorized by Congress under Housing and Economic Recovery Act (HERA) of 2008 - TZ] previously provided is if there is a housing double dip that causes losses on GSE credit books to exceed 8%.”</b></i><br /><br />---------<br />First of all, thanks for posting on this, KD. It prompted me to take a closer look at the mechanism. Looks like the Treasury guarantee, optimistically cast as a likely "surplus" by Dec. 31, 2012, might be tapped into, as RRE chugs along setting record lows.<br /><br />But to the discussion with Babar, it appears that he makes a good point: the Treasury temporary guarantee of MBS out of the GSEs runs only through 2012 per HERA. After that, as your buddy Barney notes, all bets are off. That would be a congressional decision.<br /><br />Curioser and curioser. Good stuff.Transor Znoreply@blogger.comtag:blogger.com,1999:blog-14963913.post-71390237284182069562010-07-29T11:41:44.919-04:002010-07-29T11:41:44.919-04:00Thanks for laying this out, KD. I confess I didn&...Thanks for laying this out, KD. I confess I didn't quite understand what Hussman was getting at when I read him.<br /><br />I'm still trying to figure out what the Fed's real motivation for buying the MBS was in the first place. Was it simply to keep the buyers of that debt happy? Make them whole? Keep leveraged MBS holders from being liquidated? Or did they really believe that slightly lower mortgage rates would do something for the housing market?<br /><br />And for the life of me I don't know what the heck they were doing buying long Treasuries--as you note, they were simply exchanging one US debt obligation for another--and if they want to do that, why is the government issuing interest-paying bonds at all?But What do I Know?noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-84062420811475451922010-07-29T11:17:54.559-04:002010-07-29T11:17:54.559-04:00the only difference between the treasury losing mo...the only difference between the treasury losing money and the fed losing money is that the treasury has to issue debt to cover its lost money and the fed doesn't.<br /><br />generally the fed makes money -- it's a bank and does maturity transformation -- and it rebates what it makes to the treasury. i dont have numbers here but that's usually $20B in a normal year. right now with its balance sheet much larger it's making quite a bit more. that's money destroyed. so the fed could lose a little money and just rebate less to the treasury, that wouldn't make much difference.<br /><br />my sense (i've looked at the GSE quarterly reports) is that the GSEs aren't going to lose nearly as much as projected and that the treasury might come out ahead esp. if you count the 10% they are getting in interest. (as an example right now the GSEs have about 70B in cash against future defaults, and they are paying 10% interest on that cash -- they had to borrow it from the treasury far in advance of needing it) if we double dip or if housing prices crater again soon the story is different.<br /><br />but anyway you're right that this isn't usually what the fed does -- the fed doesn't usually take credit risk and any loss would end up as a permanent change in the amount of money out there. you could compensate for that by taxing, or eventually you would get inflation.babar ganeshhttps://www.blogger.com/profile/01898299856773302141noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-73940593834756105482010-07-29T10:18:36.101-04:002010-07-29T10:18:36.101-04:00also, babar, it is possible that Garrett mis-spoke...also, babar, it is possible that Garrett mis-spoke, and meant "if Treasury chooses to restructure that debt after 2012," since Treasury is the one offering the guarantee currently?Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-18287659323091746692010-07-29T10:17:08.079-04:002010-07-29T10:17:08.079-04:00interesting point, babar. i don't think it cha...interesting point, babar. i don't think it changes the bottom line, which is the core of the Bernanke's Box full of Crap post I wrote - SOMEONE is going to lose money on this stuff - Fed/Treasury - it's all smoke and mirrors.<br /><br />you have to respect how Bernanke tried to make it look like there was no loss, but Garrett was keen enough to call him out on it.Kid Dynamitehttps://www.blogger.com/profile/17475987512856310577noreply@blogger.comtag:blogger.com,1999:blog-14963913.post-60723406441905640142010-07-29T10:07:34.542-04:002010-07-29T10:07:34.542-04:00> "If Congress chooses to restructure that...> "If Congress chooses to restructure that debt after 2012, the Federal Reserve will have created money without an offsetting asset of equal value on its balance sheet. It will have spent money out of thin air to pay off the holders of Fannie and Freddie securities. This would constitute a fiscal policy decision that was not actually voted on by elected representatives in Congress."<br /><br /><br />um, contradiction in terms here, an utterly baffling refusal to follow the principles of basic logic. let me summarize this paragraph for you, so you can see how contradictory its line of "reasoning" is:<br /><br />"if congress decides to restructure the GSE debt then the fed will be printing money withough congressional consent."<br /><br />try again.babar ganeshhttps://www.blogger.com/profile/01898299856773302141noreply@blogger.com