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The "Fixes"
It’s not just the Bush tax cuts that expire at the end of the year. The
maximum lending limits at Fannie Mae, Freddie Mac and FHA were set to
expire. The Build America Bond (“BAB”) program is another. They both
have been “fixed”. We kicked the can down the road (again) while no one
was looking.
Way back in 2008 when we were really in a financial crisis there was no
private mortgage market. The banks were all in the crapper and they were
not lending a dime. Without a viable mortgage market there would have
been a complete collapse. The maximum lending limits of the D.C.
mortgage providers were set at levels designed to support the bottom end
of the housing market. In response to the crisis the HERA legislation
allowed for a very significant, but temporary, increase in the statutory
lending limits. Those temporary increases were supposed to be reversed
as of 12/31/2010. They weren’t reversed. They were extended.
These critically important extension of federal subsidies to the
mortgage market were lumped into a number of other fixes necessary to
keep the government moving for another year (Sen. Byrd’s grandchildren
get $197k?). The language that “fixed” the problem can be found at this site. The specific wording is at the bottom, in sections 143-146. There was no debate on this. Washington just passed the trash.
The Bond Buyer reported
on Wednesday that BABs were going to “fixed” as well. The BABs program
is another child of 2008 and the HERA stimulus program. The history is
not unlike the Agency debt limit issue. In 2008 there was not much of a
Muni market left. States were being locked put of the credit markets.
Without capital they could not fund projects. The BABs legislation
created a new security to allow the states to tap a different capital
market. States were permitted to issue taxable bonds. These bonds had
higher yields than traditional Muni bonds as they were not tax
protected. To offset the cost, the Treasury department is reimbursing
the states for 35% of the interest bill. With the federal subsidy the
states were again able to issue debt.
Two years later the Muni market is in much better shape. But it is still
on weak legs and D.C. desperately needs the states to spend money to
support the economy. So the BABs legislation will be extended for
another year. The municipalities are issuing billions of long-term bonds
under the program. The federal subsidy will be doled out for 20 to 30
years as a result.
I don’t think there was much choice in the extensions of the emergency
steps taken back in 08. If mortgage limits were dropped in the key area
on both coasts from the ~$750,000 limit back to the pre-emergency levels
of ~$450,000 the real estate market would collapse. Should that have
happened we would have been in a deep dark recession in just a few
months.
Similarly, we would be dead if the Muni market shut down. If state
borrowers were forced to pay fair market rates for debt, they would not
borrow. As a result they would not spend. Deep cutbacks in key states
would have followed. Unemployment would shoot up in that scenario.
Absent the BABs program a number of states/cities would have been forced
into insolvency.
Folks, we are on life support. We have been since 2008. Nothing will
change in 2011. QE has been extended, the tax cuts will be extended,
BABs and the Agency loan limits are being extended. The IV is full and
inserted into the arm. The juice that is keeping us alive is still
flowing. But make no mistake about this. Without the IV the lights will
go out very quickly. 2011 is the last year for these extensions. When we
wake up to the fact that we are alive only as a result of medicine we
take on a daily basis there is going to be another “event”.
Some say that legislative gridlock is a good thing for the markets.
History suggests this is correct. 2011 may prove an exception to the
rule. There are too many things on the plate.
Speaking of which, enjoy that other plate that is front of you today.
bk
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Answer: None. Zero. We are on the IV.
CITI and BOA weren't making loans, but the CU's were, so tell me what the difference was?
Don't think the CU made the loan and kept it. They sold to Fannie or it was guaranteed by FHA. My point is that without D.C. somewhere in this picture your son would not have gotten that loan.
Americans have knocked down their credit card debt this past year just enough to MAX it out again during the holidays this year. It's the American Way. The pain wil come,(as always), after the fact and down the road. We have to have our Chinese junk, no matter what..............
So you're thinking it'll be another credit-card default and more borrowing from China?
How long are they going to lend us money to buy extra cars and houses that honestly we don't need and we know we aren't going to pay for? Any bets on how long this can go on?
i don't know man. I hear time and time again from everybody from paul krugman to GWB tell me the recession would have been so much worse had the stimulus not been implemented. I still have yet to hear a cogent argument explaining the free market principal behind too big to fail.
Free market argument?
How about looking for 19th century stuff on competition?
It explains too big to fail.
Anytime the competition density gets low, a set of concurrent entities can access to too big to fail status as followers in the hierarchy can not fill in in case of failure in the leading entities.
Too big to fail can happen anywhere there is competition. It can be within a 10 men firm as it can be in the global banking sector.
Too big to fail never grow bigger than the supporting structure. And when the supporting structure collapses, they collapse.
I think you're saying that the US collapsed, AND THEN the banks stole everything?
Could be I guess. At this point I hate to look too closely at what might be reality.
If the US collapses, every too big to fail supported by the US structure collapse. The TBTF banks you refer to are supported by a worldwide structure.
The US banks have stolen from few US citizens. The US banks have on contrary transfered a lot of what they have stolen to others, outside of the world, to US citizens.
If you feel you did not get your share of the loot, a very possible situation, write to your lawyer, phone your congressman with the simple message "where is my share of the loot?"
" I’ve abandoned free market principles to save the free market system "
The only free market is a black market. I'd like to rename it the pink market so it does not sound so evil.
That's all you've got, Bruce? Extend and pretend, lie and deny, moral hazard up the wazoo? How do bail-outs promote sane and stable financial choices? Oh, I see, by rewarding the parasites and criminals, of course. The scum who caused this mess need to feel our pain. All of the band-aid and patches shit just makes the adjustment back to reality more painful.
Hair cuts for bonds, health care, and file clerk salaries. Everything else is bull shit and lies agreed upon. Your "solutions" are the path of least resistance. They are also political C4.
Do you hear the people sing?
Singing a song of angry men?
It is the music of a people,
who will not be slaves again!
I'm with ya, but I have to ask again "what's the plan?" If there is one, please send it.
I'm witcha too. There's no plan. Happy Thanksgiving.
"Way back in 2008 when we were really in a financial crisis"
Yeah, so much has changed since those dark days when tanks roamed the streets. Now that the banks are all solvent, federal and state budgets are balanced, and we've reached full employment again, we have much to celebrate this Thanksgiving.
I'm grateful to be above ground.
As 'bad' as things are, how is it that every grocery store had full parking lots yesterday? And malls will be packed to the gills for Midnite Madness Friday.
People have to eat Bud. And there's the charge card. And layaway at the malls.
Groceries = people still eat
Friday stores = have you ever tried taking crack from an addict? Do you know what they'd do to get their next hit? Have the last 100 years of consumer brainwashing been rinsed out of society since 2008?
It's in paperback:
http://www.amazon.com/Extraordinary-Popular-Delusions-Madness-Crowds/dp/...
Here is a free audio version. Great book.
http://www.archive.org/details/memoirs_popular_delusions_0810_librivox
I just bought it @ Amazon for .99 d/led to my kindle. I feel so...nevermind. Will crack it open tonight.
This is one of the few seminal works on finance; which if you haven't read it, makes you a financial illiterate. The library has it also. Some of the examples in this book will stay with you for the rest of your life; and you will, hopefully, realize that human beings are really really messed up.
My comment was meant to be sarcastic, sorry it was not conveyed properly. Fambly obligations precluded response the whole day.
Done read Mackay 20 years ago, plus Kindelberger. To understand what be whut, read what I thunk be the primer on what is going on now, Cosell's "I Never Played The Game".
It all be a racquet. Doesn't matter if it is sports. Look at the cowgirls game today - down 20-3, up 27-23 only to have Dudley Drew Do-Right defeat the evil empire in the last 2 minutes, after f**king up the whole 2nd half.
Working in Charlotte the last 21+ years allows one to see that we were nothing more than a dumbass colony to be expolited by da beeg boyz. It's nothing but a big rigged game and the pros don't give a sh*t that you know it.
Tax cuts extended. We can quote you?!
Please
Sure. I think it is a done deal.
Definitely not done yet, but close. So we just keep kicking all the cans down the road, right, and wait for Bernanke to print our way out of this structural economic disaster?
If they don't extend it to all, things will deteriorate more rapidly. The ceiling should be at least $500k/year anyway. That $250k ceiling is complete BS.