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Santelli Introduces Subprime 2.0

Tyler Durden's picture


In his first major speech since The White House got their 'flexible' man in to manage the GSEs, Mel Watt outlined his strategic plan for Fannie Mae and Freddie Mac. Predicated on the maintenance of liquidity, competition, and resilience of the national housing finance market, Watt's remarkably blind to the past proposal will, as CNBC's Rick Santelli warns, create Subprime 2.0. Easing lending standards, not lowering limits, and raising the possibility of principal reduction seems to do anything but reduce taxpayer risk and merely creates more perverse incentives. Santelli steams, as the orthodox monetary policy channel of the last 30 years continues to be pumped ever higher, "immense fiscal and monetary stimulus has gotten us nowhere." As we suspect Rich might have concluded... Watt the fuck!? "if you believe any of this, you have to be crazy after what we've been through."

Santelli and Alhambra's Jeff Snider explain how monetary policy uses housing as its funnel...

"the piggy bank becomes this faux appreciation that gets funneled in a house that becomes an ATM on the "wealth effect"


"The major economic orthodoxy is aggregate demand. The way you fill demand is through credit and debt.


So the primary channel, and all the orthodox literature agrees, for aggregate demand in this framework is through housing.


For the last 20, 30, 40 years the monetary policy of this country and around the world really has been dedicated to using housing as a way to increase economic growth... but it's incredibly inefficient.


That's what we've seen with bubbles, that's what we've seen with asset inflation and prices... the fact that it takes an immense credit production capacity to create even just a little bit of economic wealth."


And then Santelli goes off on Mel Watt's plan... starting at 1:50...

As former FHFA boss Ed DeMarco warned, "do not confuse weakening underwriting standards & underpricing risk with helping people or promoting market efficiency" - it seems Mel Watt doesn't give a shit... Santelli screams to Congress - welcome to Subprime 2!

As Santelli concludes...

"if you believe any of this, you have to be crazy after what we've been through."

Of course - as we noted here - is this what's coming next to the US?


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Wed, 05/14/2014 - 13:52 | 4759759 Pladizow
Pladizow's picture

Of course, Hedge Funds need an easy market to dump into!

Wed, 05/14/2014 - 14:10 | 4759835 icanhasbailout
icanhasbailout's picture

Subprime 2.0 is contained.

Wed, 05/14/2014 - 14:13 | 4759848 Handful of Dust
Handful of Dust's picture

Mr. Ben Dover, avergae  merikan needs to stock up on moar KY.

Be better prepared next time with moar lube 'cause it's gonna hurt moar some peeples say.

Wed, 05/14/2014 - 14:29 | 4759897 eatthebanksters
eatthebanksters's picture

Ultimately this will not end well...the can is wearing out.

Wed, 05/14/2014 - 14:34 | 4759917 Xibalba
Xibalba's picture

'Reform' is the new smoking.

Wed, 05/14/2014 - 19:03 | 4760959 Keyser
Keyser's picture

Reform = re-inflating the real estate bubble... Merkans need MOAR cheap credit... 


Wed, 05/14/2014 - 14:36 | 4759925 Salah
Salah's picture

Actually it will work for a while; transiting Jupiter is in America's 8th house of debt/credit, while Saturn has just entered the US 12th House of self-undoing.  Both will be out by mid to late 2015, and the crash will be apparent by 2016.  Along with the complete "nervous breakdown" of the US Democrat Party (another chart of their own).

Wed, 05/14/2014 - 15:04 | 4760020 SquirrelButtDan
SquirrelButtDan's picture

I understood what you wrote, but haven't looked at those kinds of charts lately. ;)

Wed, 05/14/2014 - 14:11 | 4759837 NotApplicable
NotApplicable's picture

"Watt the fuck say?"

Wed, 05/14/2014 - 13:52 | 4759760 Harbanger
Harbanger's picture

Bring back Subpwime Barney Fwank.

Wed, 05/14/2014 - 14:23 | 4759884 Hippocratic Oaf
Hippocratic Oaf's picture

Is he top or bottom?

Wed, 05/14/2014 - 15:33 | 4760181 remain calm
remain calm's picture

I dont play his game but I got to imagine bottom.

Wed, 05/14/2014 - 19:04 | 4760965 Keyser
Keyser's picture

Squeal like a pig Barney!!!

Wed, 05/14/2014 - 13:55 | 4759770 SheepDog-One
SheepDog-One's picture

Insanity- Doing the same thing over and over and expecting different results.

Wed, 05/14/2014 - 14:01 | 4759800 NoDebt
NoDebt's picture

How to stage a financial coup and gut a country:  Do the same harmful thing over and over in the expectation of achieving the same desired result.

Wed, 05/14/2014 - 14:02 | 4759802 CrashisOptimistic
CrashisOptimistic's picture

"immense fiscal and monetary stimulus has gotten us nowhere."

Regardless of all other perspectives, it is astonishing that anyone can contort their thinking and somehow dismiss this.

Wed, 05/14/2014 - 13:56 | 4759778 NoDebt
NoDebt's picture

Even with all his drawbacks and obvious conflicts of interest, I'm still glad Rick's out there saying this stuff.  

Wed, 05/14/2014 - 13:57 | 4759784 youngman
youngman's picture

Well the banks just want all the fees does not matter if you can pay it student loans...and the Politicians can buy votes with this...the lowlifes can get a loan..and walk on it...its free Obama money baby....they deserve it..just ask them

Wed, 05/14/2014 - 14:16 | 4759857 Handful of Dust
Handful of Dust's picture

Bnaks are not on the hook for it so hand out OPM to anyone who can Fog a mirror...and then some.

Wed, 05/14/2014 - 13:59 | 4759791 yogibear
yogibear's picture

Load up every crevice of the economy with debt. It's the Federal Reserve bankster's plan. Infinite debt.

Wed, 05/14/2014 - 14:13 | 4759843 NotApplicable
NotApplicable's picture

How else does one create the backstop for a global currency?

"We owe it to ourselves."

Wed, 05/14/2014 - 13:59 | 4759792 ebworthen
ebworthen's picture

"...allow more leverage, essentially, into MBS [Mortgage Backed Securities] trading."


Wed, 05/14/2014 - 14:14 | 4759852 NotApplicable
NotApplicable's picture

I think you mean "quality collateral" creation.

Wed, 05/14/2014 - 14:00 | 4759795 i_call_you_my_base
i_call_you_my_base's picture

Here comes $500K mortgages for a household with $200K in student loans and $100K annual income.

Wed, 05/14/2014 - 15:55 | 4760288 corporatewhore
corporatewhore's picture

exactly.  the student loans will not be counted in your back end ratios in order to qualify you or only a percent thereof in order to be able to manipulate qualification.

this is the end game manipulation to try and get the economy moving.  even those foreclosed in the past, bankrupt in the past will have it overlooked.  final debasement

Wed, 05/14/2014 - 14:00 | 4759798 ZeroPoint
ZeroPoint's picture

Maybe Obomb-ma should include another bullet point on his youth financial education list. Not only do you 'need' health insurance, you 'need' a mortgage....

Wed, 05/14/2014 - 14:01 | 4759801 booboo
booboo's picture

Let them eat OSB

Wed, 05/14/2014 - 14:02 | 4759803 stinkhammer
stinkhammer's picture

suck a dick Barry!

Wed, 05/14/2014 - 14:14 | 4759849 Dr. Engali
Dr. Engali's picture

That would be pleasurable for him. You might be better off telling him to eat a vagina. he would find that repulsive.... especially if it's a wookie's.

Wed, 05/14/2014 - 14:03 | 4759804 Relentless101
Relentless101's picture

Some one buy that guy a drink or 2. Fucking preach. Too bad no actually watches CNBC.

Wed, 05/14/2014 - 14:07 | 4759824 NotApplicable
NotApplicable's picture

And for those that do, I bet the only time they turn the volume up is when Rick is ranting.

Wed, 05/14/2014 - 14:04 | 4759810 Dr. Engali
Dr. Engali's picture

I hope they loosen lending standards up. The sooner they do the sooner this shit falls apart. With the amount of reserve sitting on balance sheets inflation will really get interesting when the fractional reserve system gets cranked up again.

Wed, 05/14/2014 - 14:06 | 4759821 thamnosma
thamnosma's picture

Couldn't agree more.  Open up the damn faucets.

Wed, 05/14/2014 - 14:09 | 4759832 NotApplicable
NotApplicable's picture

Well, other than "fall apart" equaling WWIII, I'm with ya.

Then there's that pesky martial law stuff.

I wonder, if martial law is declared, will they have to stop evictions while we're all "sheltering in place?"

Wed, 05/14/2014 - 14:12 | 4759841 Dr. Engali
Dr. Engali's picture

There's no stopping it. It's best to meet our destiny head on than to prolong the agony.

Wed, 05/14/2014 - 14:16 | 4759858 NotApplicable
NotApplicable's picture

You've got kids too, I take it.

Wed, 05/14/2014 - 14:25 | 4759890 viahj
viahj's picture

but no jobs

Wed, 05/14/2014 - 14:31 | 4759909 SanfordandSon
SanfordandSon's picture

Think they have already demonstrated what they will do to those who shelter in place:

Wed, 05/14/2014 - 14:44 | 4759944 Rockfish
Rockfish's picture

Yea! I say bring on sub prime so i can off load the remaining properties I own. Nothing brings out the know it alls like free money.  What was that qualifier  , oh yea " fog a mirror get a loan" 

Sell into a upward trend. 


Wed, 05/14/2014 - 14:05 | 4759813 khakuda
khakuda's picture

To anyone who thought it was the free markets and not the government that caused the last bubble, please note.

Certainly this time it will end better when people start intentionally taking out loans they can't repay again.

Wed, 05/14/2014 - 15:55 | 4760290 Panafrican Funk...
Panafrican Funktron Robot's picture

The fun part is in doing the replay of the last crash, instead of doing something so old fashioned as drastically ramping the Fed Funds rate like they did back in 2006 in order to induce the variable rate crash domino, now all they have to do is slow down/stop QE.  It's literally the exact same fucking playbook in every other way.

Wed, 05/14/2014 - 14:05 | 4759816 thamnosma
thamnosma's picture

We've had a short lull in monetary destruction, including the Fed "tapering".  However, this idiot Mel Watt is giving us the first signal in Obama Stimulus 2.0.   Wait until Chicago and, for that matter, the entire state of Illinois defaults on its bonds or pension obligations.  I think Chicago is close to junk bond status.  Brown in California has just released a "good times" budget with huge deficits and balloon payments on State pensions on the horizon.  Los Angeles is only a short time away from collapse as well.  Sometime in this decade 2/3rds or more of the city budget will go to pensions and free medical for all these "servants".  The rest goes to illegals, soon to be citizens at the hands of the Democrat Socialist party and its whores in the other party.  Street repair -- forget it.

Wed, 05/14/2014 - 14:05 | 4759818 ebworthen
ebworthen's picture

CONgress and reform?

Rick, they want to create another bubble.

They don't give a damn about the economy or their constituency, just their benefactors.

Wed, 05/14/2014 - 14:07 | 4759826 OC Sure
OC Sure's picture




Say it Rick, say it. You're almost there...

"immense fiscal and monetary stimulus has gotten us nowhere"


Immense fiscal and monetary stimulus is counterfeiting and theft only benefits the thief!

A rose is a rose...

Wed, 05/14/2014 - 14:17 | 4759842 Seasmoke
Seasmoke's picture

I don't see a fucking thing wrong with principal reductions. 

Wed, 05/14/2014 - 14:20 | 4759870 Dr. Engali
Dr. Engali's picture

The banks don't care as much about principal reductions as they do interest rate adjustments. Sure we will be magnanimous and knock $10,000 off your $200,000 loan just so long as we keep the rate at 6% we are all good.

Wed, 05/14/2014 - 14:15 | 4759854 Puncher75
Puncher75's picture

I don't know when this insanity ends, I just know it ends VERY, VERY, VERY, badly.

Wed, 05/14/2014 - 14:17 | 4759859 Dr. Engali
Dr. Engali's picture

Oh Crap! France says we only have 500 days left to prevent climate chaos:


I hope you all have your affairs in order.

Wed, 05/14/2014 - 14:23 | 4759883 twh99
twh99's picture

How long will it take this time til the bubble pops?


Wed, 05/14/2014 - 14:25 | 4759889 ebworthen
ebworthen's picture

Is it just me or is it an abnormally slow news day?

I like this post about Santelli and Housing Bubble 2.0, but things seem quiet, too quiet.

Wed, 05/14/2014 - 16:07 | 4760321 kurt
kurt's picture

The big show starts on the new moon. Two theaters: China Sea, Ukraine. The chess pieces are in place. Unfortunately, the weather moves from west to east. I'm reminded of the tent scene in "The Illustrated Man" wherein the council has agreed the the end of the world is tonight. Nice knowing you ebworthen. The reconstructionists of the future will see your postings and know that you tried.

Wed, 05/14/2014 - 14:27 | 4759892 buzzsaw99
buzzsaw99's picture

they equate zirp with lowering unemployment why shouldn't they equate currency debasement via junk bonds with helping people?

Wed, 05/14/2014 - 14:29 | 4759900 doggis
doggis's picture











Wed, 05/14/2014 - 14:38 | 4759934 Zirpedge
Zirpedge's picture

You can count on it. Where else will they be watching sports and bringing thier fast food value meals? House poor and in debt up to their eye balls. Every home a debtors prison?

Wed, 05/14/2014 - 15:19 | 4760097 Tulpa
Tulpa's picture

Everybody needs a time sinkhole.  Some people watch sports, others impotently complain about monetary policy on the Internet.  Who's to say which one is more wasteful.

Wed, 05/14/2014 - 14:43 | 4759946 Platinum
Platinum's picture

They'll push them during NFL/NBA games. That's the target demographic right there. People so stupid, that they proudly know more about their favorite teams and players than they do about their own families.

Wed, 05/14/2014 - 16:03 | 4760318 IndianaJohn
IndianaJohn's picture

Aftre a few generations of education, them sheeps are already convinced.

Disclaimer; I'm short fleece. And, eat more lamb, 40,000 coyotes can't be wrong!

Wed, 05/14/2014 - 14:34 | 4759919 corporatewhore
corporatewhore's picture

the banks got theirs.  isn't about time we got ours?

Wed, 05/14/2014 - 14:38 | 4759928 Platinum
Platinum's picture

Subprime is like trying to stop a giant boulder rolling down the side of a mountain, by having it roll through giant puddles of diarrhea and urine. You're still fucked, but now the boulder smells like San Francisco.

Wed, 05/14/2014 - 14:37 | 4759929 Atlantis Consigliore
Atlantis Consigliore's picture

borrow, steal, finance, and leverage as much as you can, 2014-16 will be 

the thieves stealing all they can as much and as fast as they can,  in Washington.



Wed, 05/14/2014 - 14:51 | 4759970 CheapBastard
CheapBastard's picture

"I deserve a free house ... it's only Fair ... and's my Right as a Merikan!"


"I got Rights ya know."

Wed, 05/14/2014 - 15:04 | 4760022 Itchy and Scratchy
Itchy and Scratchy's picture

This time its different!

Wed, 05/14/2014 - 15:21 | 4760110 Tulpa
Tulpa's picture

"if you believe any of this, you have to be crazy after what we've been through."

I'm sure the banks don't believe it, but it doesnt matter. What they've "been through" was getting bailed out for their bad investments.

Wed, 05/14/2014 - 15:41 | 4760217 Bear
Bear's picture

Banks have seen nothing but Moar and Moar, Bigger and Bigger bonuses ... bring in all on say the Banksters. 2008 was the best thing that could have happened to these leeches.

Wed, 05/14/2014 - 15:34 | 4760188 Magooo
Magooo's picture

Rick needs to get his head around this --- the Fed is doing these crazy things because growth has stopped due to high priced oil....  they have no choice



According to the results of a quantitative exercise carried out by the IEA in collaboration with the OECD Economics Department and with the assistance of the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices.

Wed, 05/14/2014 - 17:24 | 4760614 realWhiteNight123129
realWhiteNight123129's picture

Aggregate demand does not exist ex-ante. The demand is inferred "ex post" after the transaction has been concluded. You can distort credit which distorts the level of transactions above what they should be, but distortion in amount of transactions does not mean that the "demand" has been stimulated. In a transaction you do not have the good or service purchased separate from the credit money used on teh other side. Those are like conjoint twins, you can separate them only in your mind, but the reality is that you never see any item, good or services transacted without money or credit on the other side. Since interest rates reflect duration and time, you only shift deferred consumption to today´s consumption. You do not stimulate demand, you just time shift consumption levels. 


Wed, 05/14/2014 - 17:24 | 4760626 Ban KKiller
Ban KKiller's picture

See, at the end, I mean THE END, you DIE. Got it? So...your job while here is to help someone, starting with your family. 

Then you send banksters nail guns with instructions. 

CNBC is the Onion in deep state. That is all I can figure. 

Wed, 05/14/2014 - 17:49 | 4760712 boeing747
boeing747's picture

Turbo Tim said before congress: "MBS bonds are not treasury bonds, but we will make sure they are properly funded". 


Wed, 05/14/2014 - 18:01 | 4760751 fzrkid
fzrkid's picture

sounds like we have another 5 years of rising equities, houses and everythng else that can be paid for with borrowed money

Wed, 05/14/2014 - 18:03 | 4760754 MeBizarro
MeBizarro's picture

Like the junkie going back to the fix he knows all too well.  The only problem is that his veins in both arms are shot to hell and it takes a lot more pure stuff to get the same euphoria highs anymore. 

Normally I take what Santelli yells about with a grain of salt because he a babbling TV personality but he is right on about what this is generally. 

Wed, 05/14/2014 - 20:17 | 4761145 RMolineaux
RMolineaux's picture

It is interesting to compare the housing markets in the US with that of the tropical country where I now reside.  Because of the grotesque maldistribution of income in the US, instead of house prices falling in the recession, they are now rising due to the action of speculators.  They are buying up empty houses and reselling or renting them out at pre-2008 prices.  This continues to prevent marginal buyers from entering the market legitimately, encouraging the re-ignition of overreach and fraud that characterized the pre-2008 market.    A house of similar size and quality in the tropics sells for much less than those in the US.  There are several reasons for this:  Real estate transactions here are not overloaded with the transaction costs that US transactions suffer.  The lawyers, brokers, banks, insurance companies and government fees that parasitize transactions in the US are considerably less here.  Also, the absence of space heating need reduces the cost of construction and maintenance.  The banks here are accustomed to low credit quality borrowers and protect themselves by arranging direct salary deductions, which are legal and subject to little complaint.  Mortgage defaults are common and the system is designed to handle them smoothly.  In addition, the government directly subsidizes the mortgage interest rate on low income housing projects, and many families build their own houses on lots that they have purchased.   


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