D.C. & Mortgages

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Mon, 12/27/2010 - 17:53 | 832261 huckman
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Denninger has a great update today on the REMIC trustees.

Mon, 12/27/2010 - 17:03 | 832129 Panafrican Funk...
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Too many entities make their living on the government guarantee backstop of the GSE's.  Even a partial removal or qualification of that backstop will completely fuck up everything.  As Richard Shelby is a puppet for said entities, I'm sure Mr. Smith was probably just the wrong kind of lapdog.  I repeat, there is no way in hell they're removing that guarantee backstop.  They will defend that backing at all costs.  There is literally about 3.25 trillion dollars wrapped up in that guarantee.  Anyone still think housing is small potatoes for the economy?

Mon, 12/27/2010 - 16:16 | 832046 Common_Cents22
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How many billions were stolen from retirees and savers by ZIRP?

Mon, 12/27/2010 - 16:15 | 832044 Common_Cents22
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How many billions were stolen from retirees and savers by ZIRP?

Mon, 12/27/2010 - 16:22 | 832064 Astute Investor
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According to David Stockman, ZIRP has cost American savers approximately $250 billion.

Mon, 12/27/2010 - 03:32 | 831306 DR
DR's picture

Without the GSEs only the TBTF "private" banks would be making mortgages. Either way the government is going to back stop the market.

Mon, 12/27/2010 - 00:56 | 831232 Astute Investor
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Any "asset" that requires ZIRP as well as artificially low interest rates in order to maintain a perceived market value is by definition worth far less.  It's really nothing more than a form of price controls.  We know how that worked out back in '70s.

Let the market clear and we can all move onward and upward.

Mon, 12/27/2010 - 10:34 | 831507 snowball777
snowball777's picture

We are fully prepared to make every one of Nixon's mistakes over again, if called to serve.

What's next in the flashback sequence...an OPEC embargo?


Mon, 12/27/2010 - 15:26 | 831928 hedgeless_horseman
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What's next in the flashback sequence...an OPEC embargo?

My bet?  The mother-of-all-yield rallies.

Tue, 12/28/2010 - 00:04 | 832772 JuicedGamma
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Bennie will NOT have your back.

Sun, 12/26/2010 - 19:15 | 830909 Salinger
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How our dependency on Washington for the loot that keeps the real estate market alive is resolved will be make or break for the entire economy.

On two separate occasions I have heard pundits on Bloomberg downplay the role of housing in the economy with the statement that housing  accounts for just 5% of GDP. One was Larry Kantor of Barclays who made that comment on Dec 16.

Sun, 12/26/2010 - 23:26 | 831141 Bruce Krasting
Bruce Krasting's picture

Long ago and way back when I worked with Larry. He was as wrong as the next guy.

If these suits really-really knew the future you think they would tell you on TV?

Mohammad said, "You cannot foretell the future". Neither can Larry.

Mon, 12/27/2010 - 15:21 | 831913 Dollar Bill Hiccup
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"Don't it make you want to rock n roll ..."


Sun, 12/26/2010 - 23:59 | 831176 ebworthen
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Chaos is never predictable.

Sun, 12/26/2010 - 21:07 | 830974 Temporalist
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And conversely when housing is doing great they claim how important it is to the economy and how it is a measuring stick to its strength.

I guess the derivatives and housing sector equities are minimal too and tax revenues are a trifle as well as energy and construction and materials and....

Just piddling because the middle class is meaningless to the kleptocracy.

Mon, 12/27/2010 - 00:52 | 831122 hamurobby
hamurobby's picture

I think you hit the nail. There is no way they WILL let housing find a true value, the value will not sustain enough tax base to pay the promised retirements and wages for government. We will get our inflation because the system needs it, middle class be damned.

When I hear the talk that change is coming in the beltway, all I can envision is those new idealistic elected getting herded into a room and explained to them how if the current system isnt extended, they will loose their money, power and be blamed for the collapse. Only a very few (like Ron Paul) are actually ready for such a scenario and are willing to bring about the change that is needed. Its just not going to happen until it cant be extended and pretended any longer.

Sun, 12/26/2010 - 18:57 | 830881 doolittlegeorge
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what's this girl got to do with DUI's btw?

Sun, 12/26/2010 - 18:56 | 830879 doolittlegeorge
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obviously wrong to look at the housing market "as one housing market." Florida and the West Coast can clearly recover as "the ranks of billionaires might be thinning" the "ranks of middle class foreigners" is not. interesting to say the least that "the Federal Government itself is the sole loan originator in the biggest mortgage market on earth."  talk about risk aversion!  "fear of failure kills a market, too" thus the Federal Government "propping up THIS market" of all things is a made to order fiasco and so long as it continues "serves only to drive the price of that which is very valuable lower and lower and lower and lower."  I find "a shooting war between the US and China on the Korean Penninsula" a potential "out" as they say.

Sun, 12/26/2010 - 20:06 | 830969 Temporalist
Temporalist's picture

So you believe foreign investors weren't part of the current housing bubble?  In Florida there were so many South Americans, Europeans and Canadians buying property it looked like a completely different country.  In California Chinese, Japanese, Koreans, Central and South Americans flooded that market too.

Maybe they won't take losses because they will run back to their home countries and just walk out on their underwater mortgages.

Sun, 12/26/2010 - 18:54 | 830877 banksterhater
banksterhater's picture

There's going to be a logjam of close to 8 mil foreclosures in the next few yrs, how can that not be Chinese water torture to the economy? There's no balls in Wash for a RTC-type thing.

Sun, 12/26/2010 - 18:47 | 830873 honestann
honestann's picture

NO.  No more half-way measures.

Get government 100% out of the mortgage biz.

What will happen is obvious, and is what should happen.  Home prices will crash... which is the current terminology for "return to slightly below the long term average".  In other words, home prices would fall to about 50% above the appropriate price, but 20% below the long term averages.

People don't realize it, but home prices have been driven far, far, far above their natural and appropriate levels by decades and decades of government perversions of this market, and massive abuse of "fractional reserve banking".  This is the single biggest reason that today, average people are vastly further in debt than ever before, even though BOTH parents are working, and massive new productive efficiencies have been realized since cheap computerization and automation became a reality.

Get government totally OUT of the mortgage market.  Let the chips fall where they may.  Let home owners walk away from their mortgages, and let the banks take back the homes that they freely accepted as collateral for those homes.  Let the banks fail.  Shut them down.

Let home prices fall to where they belong (where ever they naturally go), whether that is 30%, 50% or 65% below current prices.

That will start a BOOM in the housing market.  Furthermore, since people will be buying homes that are FAR less expensive, they will have LOTs of extra income left over to buy other products without going into debt... thereby spurring the rest of the economy in a major, but natural, sustainable way.

Government.  Get the hell out of "business".

Tue, 12/28/2010 - 00:10 | 832776 JuicedGamma
JuicedGamma's picture

Well said sir, F 'em all!

Mon, 12/27/2010 - 10:26 | 831502 snowball777
snowball777's picture

Woohoo...let's make sure we have a 100% secondary mort market bailout next time!

OPM is OPM whether it comes from a taxpayer or MBS bought by some schmuck's 401k stash and will continue to blow asset price bubbles with or without GSEs through the secondary mort market; there'll just be more 'jumbo' loans on the books instead of conforming ones when the SHTF.

Eliminate the mort interest deduction...why encourage yuppies to borrow even more on ARMs and forego the revenue to afford defending their McMans?


Mon, 12/27/2010 - 09:36 | 831470 hardcleareye
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The very large powerful corporations have "carte blanche" and the mid to small businesses are "regulated and taxed to death".  This is no accident......

When you say "get the government out of the mortgage market" are you also calling for no government regulations of the mortgage market? 


Mon, 12/27/2010 - 10:29 | 831505 snowball777
snowball777's picture

Of course HA is...until a contract goes haywire and then it will be all about sparing no expense to defend Ann's property rights.

Hey Ann, what "government intervention" is most responsible for the mortgage/foreclosure fraud?

(hint: it was an executive order to the OCC by a famous chimp circa 2003)

Tue, 12/28/2010 - 05:47 | 832970 honestann
honestann's picture

If I ever buy a home, it will be with cash.  Though I do have enough saved now (about $300K), I won't be buying anything in the USSA.  I'm leaving in 4 months, never to return.

Anyone who imagines, in their wildest dreams, that government gives a rat's ass about helping you in any way (resolve contract issues), has been smoking crack or something worse for far, far too long.

Answer to your question: Probably the GSAs layered on top of "fractional reserve banking".


Mon, 12/27/2010 - 01:42 | 831253 RockyRacoon
RockyRacoon's picture

Sorry to say it won't happen due to the special interests involved.  Good sentiment on your part, however.  There are too many cooks in this kitchen, some of whom we'll never hear of.  There is more than one Wizard behind that curtain, unfortunately.

Mon, 12/27/2010 - 17:48 | 832252 RalfMalf
RalfMalf's picture

While it may not happen due to special interests involved, it doesn't mean I am required to participate!

I never owned real estate. 

This year (2010) I bid on one REO and lost out, bid on a short sale at 1/2 of assessed value....and pulled the offer while I still was able.

I've convinced the wife that renting is the way to go.  I'll not join the ranks of middle (or upper middle) class slaves. 

I'll not sentence myself to running in the corporate wheel like a hamster on coke, worrying all the while that hopefully they don't find someone younger, cheaper and smarter (they will) and replace me when I'm most vulnerable.


I'll still bust my butt at the office, but I'll be a renter from here on out. 

I'll pay up to live in a nice community and keep my kids in a great school system.  But I also won't take the inevitable beating that will be required by municipalities of their resi real estate owners.




Mon, 12/27/2010 - 18:49 | 832340 Panafrican Funk...
Panafrican Funktron Robot's picture

Guess who they're going to pass that beating onto? 


Sun, 12/26/2010 - 18:14 | 830833 Mr.Kowalski
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ebworthen: "They will either confiscate or put withdrawl limits on IRA's and 401K's, essentially trapping money in the markets and use that to fund the next speculative debt bubble"

The INSTANT this happens, electronic withdrawls by large foreign interests will commence, ensuring the collapse of the entire banking system. Think I'm joking ? Take a gander at this CSPAN video about what nearly happened in 2008:http://www.youtube.com/watch?v=m_atOvrTtT8&feature=related 

Mon, 12/27/2010 - 00:36 | 831212 Dburn
Dburn's picture

Thanks for the link. One has to wonder if "the collapse of the banking system and the political system as we know it (my emphasis)" is something that was just delayed and would it all have been bad had it happened all at once or collapsing  by thousands of cuts each month and year until both end results would have been the same only after years people don't have the energy to rebuild or the trust. I also have to wonder if "the collapse of the politcal sysetem as we know it" may have been the catalyst needed to get rid of the "Buy the govt you want, not the govt people need".

Sun, 12/26/2010 - 18:05 | 830820 Mr.Kowalski
Mr.Kowalski's picture

Wow Bruce.. and here I was thinking my view of "After the Crash" was grim.. your view of the dark side is far worse than my scenario:


But I agree with the concept Bruce.. I think few people recognize just how bad a collapse could really be. 


Sun, 12/26/2010 - 17:52 | 830798 moneymutt
moneymutt's picture


First, I must say you are wicked smart, well-informed and seem exceptionally rational as opposed to rigidly partisan...don't see that much these days, but of course ZH is one of few places one would expect commentary like yours.

I'm a littel skeptical on the Shelby thing in that I have not seen any more ideologicaly pure commitment to ideals from Repubs than I have seen from Dems. And even if he had courage and ability to get what he wanted for Fan and Fred, there are very powerful interests against him. Home builders, realtors, bankers, Fan/Fred bondholders etc..

I agree with you that just pulling the plug is uneccessarily harsh solution. I think there are plently of examples how to do an orderly unwinding, I believe that is the whole idea of bankruptcy protection, FDIC method of shutting down banks etc.

Fan/Fred bondholders should have been wiped out. Fan/Fred should have been handled more like GM. I heard even fairly conservative business analysts say the temp govt ownership of GM was more business-like than the previous management (not that is a high standard). The businesses infrastructure was not unneccesarily trashed, it was kept intact, a net good for US.

Someone really smart can probably tell us what the right mix is between all cash deals for housing and having mortgages, and how involved the govt should be. I think we can all agree it is something less than 95 percent.

What seems absolutely silly to me is creating a giant private enterprise that the govt has to back simply to lower the interest rate 0.5-1.0 pts on mortages compared to private mortgage market. Shoot, the Fed can lower rates for free, no?


Sun, 12/26/2010 - 17:16 | 830763 apberusdisvet
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We are no where near the bottom of housing and that is why the potential liabilities of F&F are vastly understated.  More likely in the trillions.  But it's only more worthless paper not to worry about.  Right?  Some estimates place our total debt liabilities north of $200T, including all those conveniently placed off balance sheet.  There is no way that this debt can be repaid, by any combination of circumstances except outright default.  Zimbabwe or Weimar hyperinflation  would totally destroy this country even for the vultures that await.

My personal feeling is that the banking cartel is shit scared right now.  It envisioned an incremental end game, one that they could manage.  Events, however, have gone beyond the bankers control.  2011 should be interesting to see how much further down the road the can will be kicked.

Sun, 12/26/2010 - 16:38 | 830730 goodrich4bk
goodrich4bk's picture

Bruce, I read your 09 parade of horribles.  I don't buy it.  Installment credit has been declining for two years which means Americans have not been incurring any NEW credit.  In other words, the availability of new credit is NOT required to keep Americans spending.   They are spending without incurring a single dime of new credit.

The real nightmare scenario is a nightmare for bankers and their bondholders.  And that is this: Americans only need to pay their existing credit balances IF they are granted continuing credit.  So the nightmare you imagine would more likely look like this:


1.  Credit freezes.

2.  Consumers unable to get new revolving credit stop paying their existing balances becausethey need the money to fund cash purchases.

3.  Bank bondholders who finance all existing consumer credit would suffer massive losses as their bonds plunged in price.

4.  Margin calls would accelerate and exacerbate the bond losses.

5.  Retailers would replace credit with layaway and inhouse credit programs.

6.  Most of the above losses would be felt by foreign bondholders, not average Americans.  In other words, most of the losses would be taken by those who voluntarily agreed to take them and who have been paid to accept them (in the form of interest returns greater than treasuries on such bonds).

7.  The creation of local credit unions and banks to replace the VISA/MC system of securitized lending would decimate Wall Street firms that earn fees from the trans-national system of securitized finance.



Mon, 12/27/2010 - 15:25 | 831922 ghostfaceinvestah
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"They are spending without incurring a single dime of new credit."

The government is doing the borrowing for them.

Record deficits --> stimulus+transfer payments+squatter stimulus+etc -->sustained consumer spending.

Trust me, your share of the national debt has risen through no choice of your own.

Sun, 12/26/2010 - 16:27 | 830719 max2205
max2205's picture

Mortgage market is still barely breathing

Sun, 12/26/2010 - 16:00 | 830686 Temporalist
Temporalist's picture
Home Prices Probably Fell, Baring Weak Link in Accelerating U.S. Recovery


Sun, 12/26/2010 - 15:04 | 830613 Problem Is
Problem Is's picture

Nice summary of the CBO report, Bruce. Thanks for the facts and info.

King comb-over with a lap-dog brown dye job... Clown party R and Clown Party D both do exactly what TBTF tells them to do...

If anything it is competing sides of Wall Street racing the bitch Congressional ponies they own, not competing sides of a phony political left/right paradigm...

Sun, 12/26/2010 - 15:16 | 830629 Kayman
Kayman's picture

Problem Is

I couldn't agree more.

Watching our politicians is like watching Wrestling.  Entirely choreographed and you get an extra large brown envelope on Sunday if you bleed on the matt.

Mon, 12/27/2010 - 10:08 | 831494 hardcleareye
hardcleareye's picture


Sun, 12/26/2010 - 16:09 | 830697 Rockford
Rockford's picture

+ 37 7/8


Sun, 12/26/2010 - 14:36 | 830572 gwar5
gwar5's picture

Kill the big zombie banks with their toxic assets, break up the rest of the TBTF like Volcker suggested to create a market, and then get rid of Fannie and Freddie and all the criminal cronies there, too. The world will survive without the Prince Alaweeds, Robert Rubins, and Citigroups.

Sun, 12/26/2010 - 14:23 | 830559 Kayman
Kayman's picture

I don't know Bruce ? Do you think this will pass the Central Planning Committee's 5 year plan ?

Will there be room for the skim for the parasites ?

Cobbling together a "free" market by political whores and the bankster parasites requires putting the common good first.

And at that point it will die.

Sun, 12/26/2010 - 14:24 | 830558 Bruce Krasting
Bruce Krasting's picture


Read my lips:

I would love to have Washington’s role in the mortgage market eliminated altogether

That aint happening. So what's a reasonable plan B? Are you so sure you want to cross to the dark side? Tell me what it might look like?

I wrote the following in February of 09. That was a scary period. I tried to describe what it might look like. These things will not happen. We came close back then. We are not out of the woods, but the worst case is avoidable.


Mon, 12/27/2010 - 10:47 | 831516 Capitalist10
Capitalist10's picture

How about requiring mortgage lenders to keep 10-20% of the loans they originate and absorb the first 10-20% of any losses.  That would get rid of a lot of the social engineering in home lending.

Mon, 12/27/2010 - 00:32 | 831204 A Nanny Moose
A Nanny Moose's picture

Ain't happenin'? Really?


Our current path is toying with currency destruction. The middle class will feel it first. At which point cross over to the dark side anyway.

A large swath of the population losing money based on bad bets, is always preferrable to an entire nation with no purchasing power. In the former, those with capital can make a new start, ad help those in need. In the latter, nobody can help anybody, because capital does not pool, and if it did, it would buy nothing.

Sun, 12/26/2010 - 17:34 | 830777 ebworthen
ebworthen's picture

There is no plan B, they don't want a plan B, or C, or D.

What we have is exactly what was engineered; a decade of commissions and profits from the origination, payments for a time, loans bundled into CDS's, and when the profit of the venture had been milked the dead cow was handed off to the current and future taxpayer.

Privatized gains with socialized losses.

This is the same model as healthcare.

If they can't let the TBTF banks fail, or the car makers, or the AIG's of the world; why would they ever let the government (taxpayer) backed milking cow of a mortgage industry fail?

They won't.

They will either confiscate or put withdrawl limits on IRA's and 401K's, essentially trapping money in the markets and use that to fund the next speculative debt bubble.

Kick the can, kick the can, kick the can.

The word "confiscate" won't be in the bill of course, it will be a euphamism such as "American Home Security Act" or some other invention of sophistic sausage these harpies and warlocks dream up under the dome of Oz.

Sun, 12/26/2010 - 16:29 | 830722 Thoreau
Thoreau's picture

"...the worst case is avoidable." The worst case is unknown. And if I understand you correctly, you are suggesting continued obfuscation and controlled demolition of an inevitable correction. If that's our best plan... well, we have no relevant plan.

And what's so "scary" about transparency? Because that's really what we're talking about here. Truth, trust, public opinion, a return to the mean, castration of soaring deficits, the war machine, overindulgence, etc, etc. Let's take some freakin' medicine for a change!

Sun, 12/26/2010 - 15:00 | 830606 Kayman
Kayman's picture


Took the time to read your Feb 09 thoughts.

1. Saving the New York Fed banking cartel has cost us the economy. They should have been put into receivership and broken up. If the same money was placed with banks that function as financial intermediaries the economy might have had a chance.  The seeds have been planted for a garden of weeds for at least another decade.

2. Housing has become affordable in most of the U.S. It is only the "money for nothing" policy of Greenspan/Bernanke that created the distortions (via inflation) in the first place. Countless stories of families broken up because of these ZIRP and near ZIRP policies whose only real purpose is to fund their puppet masters.

3. Without a revival of American manufacturing, with the attendant creation of well-paying jobs, we are going to suffer high inflation along with high unemployment.

All the chaos, fear and wealth destruction brought on in the fall of 2008, rests at the feet of the very people that are currently doing the very same deeds that got us into this mess in the first place.  Moral Hazard indeed !

Tell me Bruce- what is your estimate of the "unrecorded/undisclosed" losses hidden at the Fed and the big banks ? 

And isn't it true that all the funding from the Fed and Treasury is simply supporting yesterdays horrific losses and not going to the productive economy ? 


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