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The Latest Spin In The GSE "Take From The Poor And Give To The Rich" Saga: The Reverse Robin Hood Construct

Tyler Durden's picture




 

The latest submission for the "Getting Your Blood Boiling in 60 Seconds" award. The Convexity Maven, aka ML's Harley Bassman, shares his musings on the latest "Reverse Robin Hood" government endorsed GSE paradox (aka taking from the poor and giving to the rich), submitted by Merrill Lynch's Harley Bassman.

 

 

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Fri, 02/12/2010 - 14:50 | 228816 Nolsgrad
Nolsgrad's picture

that's f-d up. leave it to the gov't to spend the highest amount possible.

Fri, 02/12/2010 - 15:05 | 228823 Bam_Man
Bam_Man's picture

BTW, I am currently being paid a 5% coupon on my GSE bonds.

By definition, the MBS themselves must have a higher coupon than the bonds issued to fund the mortgage purchases.

IMHO, the 6% coupon on the MBS is not at all excessive given the upward explosion in the number of loans being pulled from MBS pools due to delinquency.

The problem is that it is impossible to find investors willing to settle for less than a 5% coupon on the GSE debt.

Fri, 02/12/2010 - 15:40 | 228924 Anonymous
Anonymous's picture

Then no such debt should be offered. The Treasury has no problem attracting investors with 0-4% coupons, based on the maturity, so all _existing_ GSE can be financed directly by the Treasury. Of course, we need absolutely NO new such debt..

Fri, 02/12/2010 - 15:41 | 228925 Anonymous
Anonymous's picture

Then no such debt should be offered. The Treasury has no problem attracting investors with 0-4% coupons, based on the maturity, so all _existing_ GSE can be financed directly by the Treasury. Of course, we need absolutely NO new such debt..

Fri, 02/12/2010 - 16:05 | 228974 Bam_Man
Bam_Man's picture

GSE debt (excl. GNMA) does NOT have "full faith and credit" US Gov. backing.

Therefore you cannot compare GSE debt to US Treasury debt.

Two entirely different animals right now.

Fri, 02/12/2010 - 21:49 | 229372 mberry8870
mberry8870's picture

Really?

Fri, 02/12/2010 - 14:58 | 228833 Anonymous
Anonymous's picture

I think this is just the basic rationale of why the GSEs are/should be on federal government balance sheet. And also why they should be included in the federal budget (despite the hypocracy of budget doofus Orszag (sp)).

Fri, 02/12/2010 - 15:01 | 228840 Anonymous
Anonymous's picture

When statists sniff an opportunity to extract more tax from their subjects they usually find an excuse quite quickly. Gordon Brown certainly thinks that the solution to all of our problems is to invent a new tax. So it is no wonder that taxing banks is his solution to the global credit crunch. How that is supposed to absolve us from problems such as excessive borrowing, mismatch of maturities in balance sheets or simply bad lending is not explained to the public. In addition we have to expect the worst when it comes to disposal of the loot: will the tax money end up in some sort of reserve fund? or is it a pay-as-you-go scheme like the national 'insurance' or unemployment 'insurance' schemes that we are so familiar with?

Fri, 02/12/2010 - 19:05 | 229213 Anonymous
Anonymous's picture

Can't wait for the new taxes on borrowers who contributed to this mess (who are also getting bailout funds - just in different form).

Best I can tell from all the commentary, the credit mess was 110% fault of lenders. Not sure if borrowers were even party to the bad loans -- just happened to be standing nearby when the loan got executed, but did absolutely nothing wrong, made no poor decisions, made no terrible assumptions, were not greedy, made no presumption about tomorrow and are virtually blameless --- at least sufficiently blameless not to be castigated by anyone nor viewed as a meaningful player in the credit mess. Weird. Doesn't seem rational.

I know: lenders = evil & greedy and borrowers = benign, helpless and benevolent. Sorry, my bad.

Fri, 02/12/2010 - 15:02 | 228843 Anonymous
Anonymous's picture

When statists sniff an opportunity to extract more tax from their subjects they usually find an excuse quite quickly. Gordon Brown certainly thinks that the solution to all of our problems is to invent a new tax. So it is no wonder that taxing banks is his solution to the global credit crunch. How that is supposed to absolve us from problems such as excessive borrowing, mismatch of maturities in balance sheets or simply bad lending is not explained to the public. In addition we have to expect the worst when it comes to disposal of the loot: will the tax money end up in some sort of reserve fund? or is it a pay-as-you-go scheme like the national 'insurance' or unemployment 'insurance' schemes that we are so familiar with?
Heinz Geyer, Temple Associates, London

Fri, 02/12/2010 - 15:05 | 228848 You Cant Handle...
You Cant Handle the Truth's picture

But, but ... there's this huge Mexican Standoff of CDSs and other derivatives that we can't POSSIBLY regulate and deal with (*snark*), so we have to give the bondholders whatever they want, so that nobody pulls that trigger!  

It's for the citizen's own good, you see.  They're actually paying protection money to Guido the Market Maker.  That average person wouldn't, you know, want a too-big-to-fail to default, causing, ... you know... their pension to burn down, ... or their home to ... have something... nasty happen to it.  So we best fuggidabout it.  

 

Fri, 02/12/2010 - 15:35 | 228913 Anonymous
Anonymous's picture

Would you want anything other than a higher yield on this garbage?

Fri, 02/12/2010 - 15:55 | 228952 Anonymous
Anonymous's picture

"Take from the poor and give it to the Rich"... Isn't this Capitalism on steroids which is the American dream ? If we cannot uphold the true values of capitalism, I shudder to think what is being done in the name of capitalism in BRIC countries.

Fri, 02/12/2010 - 16:11 | 228988 Anonymous
Anonymous's picture

Robin Hood?

He returned property taken from the poor (via taxes) to their owners. Nothing like that is around today...

Fri, 02/12/2010 - 19:07 | 229215 Anonymous
Anonymous's picture

So you are arguing for across the board tax cuts...amen, brother. Gives us back the money the government takes from us.

Fri, 02/12/2010 - 16:23 | 229007 Sagacious Sam
Sagacious Sam's picture

Yeah, I'm not so sure this is a reverse Robin Hood situation as much as it may appear that way.  It hink its more a function of the GSE's, like many others (failed modification programs!!) to face up to the fact that people are just going to default.

 

So finally, FH and FN have started to face up to the fact these 90+ deliquents just aren't going to make good, and enough with paying out these 6% (probably closer to 5%) coupons when they really could be paying out 0.2% coupons.  I imagine IO owners are not to happy with this decision, but after all the tightening they really should not be holding them anymore.

 

I'm curious to see what affect this has had on the dollar roll market.

 

Anyone?

 

Fri, 02/12/2010 - 16:27 | 229013 Anonymous
Anonymous's picture

At least in India you get decent rate of return on savings (almost 9 % if you are over 60) of 5-6 % on fixed deposits (what are called CDs in the USA) but for much shorter durations like one year.

Fri, 02/12/2010 - 16:34 | 229023 Anonymous
Anonymous's picture

Does anyone from Obama's team watch PBS?

PBS News Hour Reports on Goldman Sachs

REPORT AIR DATE: Feb. 11, 2010
Unraveling the Profit Puzzle at Goldman Sachs
SUMMARY
As part of his continuing series of reports making sense of business and the economy, Paul Solman examines the inner workings of investment powerhouse Goldman Sachs and how it makes money.

http://tinyurl.com/ydmblwl

Fri, 02/12/2010 - 17:22 | 229087 ghostfaceinvestah
ghostfaceinvestah's picture

I have heard this advice from others - it sucks.  How about this: the GSEs will no longer be buyers of MBS because they are full up with delinquent loans, the Fed won't be buyers, the Treasury is no longer a buyer, so that leaves no buyers.

This notion that all this money will be freed up from the buyouts is just garbage.  Who is holding a lot of the 2005-2007 vintage MBS that these loans will come out of?  Oh, the Chinese, who sure as hell aren't gonna be re-entering the market.

Short the mortgage basis going into March, I say.

Fri, 02/12/2010 - 17:55 | 229144 Anonymous
Anonymous's picture

Thanks Tyler! Keep up the good work...your analyses and the work from folks like Harley Bassman are the only mechanism pushing against the ruling class.

Fri, 02/12/2010 - 19:11 | 229219 Anonymous
Anonymous's picture

Obama -- PLEASE crank up the class warfare. Give us the even outcomes we the PEOPLE crave (or at least 50% of the people crave).

Fri, 02/12/2010 - 20:11 | 229270 TopHat (not verified)
Fri, 02/12/2010 - 22:27 | 229403 Fox Moulder
Fox Moulder's picture

How many of the delinquent mortgages were purchased by the Fed at 100 cents on the dollar, and will now be offloaded to the taxpayers?

Mon, 04/19/2010 - 09:55 | 307761 Tom123456
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