From Bloomberg this morning as stocks tumble:

“This is a systemic financial crisis, there is no end to it,” Nouriel Roubini, professor of economics and international business at New York University, told Bloomberg Television. “It’s a vicious circle between a contracting economy and greater credit and financial losses feeding on the economy.”

President Bush reminds us that the system is “basically sound”:

WASHINGTON (AP) - President Bush urged lawmakers on Tuesday to move quickly in putting into force legislation designed to help prop up mortgage giants Fannie Mae and Freddie Mac while declaring the nation’s financial system to be “basically sound.”

My thoughts?

Well - I don’t think the government should move too quickly on the Fannie and Freddie bailouts. I don’t trust them to get it right this quickly. Too many variables, too many unknowns. Take a deep breath, try to really understand what the best solution is to this problem. The last thing you want to do is panic. At the end of the day it’s investors who are losing money right now - and that’s the game they play, and the government can come in at anytime in the future with a more sensible plan and rescue the market. I just want to caution against hastily put together plans.

Late afternoon update (4:12PM):

Fed Chairman testifies on the Hill (Marketwatch):

Fed uneasy about inflation, growth, Bernanke says

But he also spoke candidly about the weak economy and fragile financial markets. “The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth,” Bernanke said.

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Tags: crisis, fannie, freddie, market, stocks
Categories: Congress and Government, Debt, Economics
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I came across an interesting post at The Liscio Report called “Presidential economics: Do parties matter?” And as I read through it I came across some interesting analysis and I realized there may be come misconceptions about which party really does what. Democrats are believed to be fiscally irresponsible, spenders and Republicans are supposed to be fiscally responsible and small government. Which should technically result in bloated budgets with lots of deficits for Democrats and trimmed outlays with balanced budgets for Republicans. I know in recent years fiscal responsibilty has been thrown out the window, but that seems to fit the pattern and does not appear to be an anaomoly.

Take a look at this chart:

This is not what I would have expected. Democrats lowering the budget deficits and Republicans increasing it for the most part? Are we being misled here then? Do the parties have a branding issue? This is how the authors explain it:

Though the picture so far is of the Republicans as the party of austerity and the Democrats as the party of stimulus, there’s a surprise when it comes to changes in the federal deficit: Republicans are more liberal with the red ink than Dems. On average, a Republican in the White House has meant a shift of –1.9% of GDP in the government’s budget balance (i.e., towards smaller surpluses or bigger deficits), while a Dem has meant a 1.5% improvement in the budget position (or 1.8%, if you start in 1949, thereby omitting the huge World War II deficit). And in this case, the average is a faithful representation of the distribution, with only one Democrat in the minus column and only one Republican in the plus.

Some of this reflects different tax policies, with Reagan and Bush 43 cutting, and Clinton raising income taxes. But it also reflects the partisan difference in GDP growth.

Read the whole thing. Certainly makes you think, doesn’t it?

Hat tip: The Big Picture

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Categories: Congress and Government, Debt, Economics
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With stocks down 98% from a year ago, rising loan delinquencies and very little liquidity, Indymac, one of the nations top 10 mortgage lenders is done! It’s closing its wholesale and retail operations as well as halting any new locks. At one time IndyMac was a major player in the “Alt-A” market (loans with risk levels between subprime and prime). From Bloomberg earlier today:

IndyMac, the second-biggest independent U.S. mortgage lender last year behind Countrywide Financial Corp., has lost almost $900 million in the nine months ended in March amid tumbling home prices. The company is focusing on mortgages that can be sold to government-sponsored enterprises like Fannie Mae and Freddie Mac.

If you are in the market for a home mortgage and were working with a mortgage broker, call your broker to ask if the loan was to be placed with IndyMac. You’ll need a new lender!

In other bleak news, it was disclosed today that Fannie and Freddie may be required to raise as much as $85 billion in additional capital. To be fair it’s due to new accounting rules, but still the markets were in turmoil.

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Tags: credit crisis, indymac, liquidity
Categories: Economics, Mortgages, Subprime Mortgages
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Okay most everyone knows what I think about this massive bailout package Congress is about to pass. In case you missed it, I think it’s a sham. Seriously. A big sham. How else do you explain this to the 30% of tax payers who are not homeowners. How about the 80%+ homeowners who pay their bills on time, buy what they can afford and read before they sign? Yeah. How about these tax payers.  Mr. and Mrs. Renter who lives within your means how about you pony up some dough so that we can clean up the mess our Wall Street pals and a few over excited folks made over there.

Okay.

Take a deep breath.

Aaaaaaaaahhhhhhhhhhh!

Now. Here are some of the details of the $300,000,000,000.00 mortgage rescue plan currently being “debated” in the Senate. From the Dallas Morning News:

They would receive a refundable tax credit of up to $8,000, or 10 percent of the home value, on purchases of unoccupied housing.

As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets. That would make it easier for borrowers in those areas to obtain mortgages at discounted rates.

Later on in the same peice it says:

The Senate bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and establish stricter lender disclosure rules to make plain the maximum monthly payment for an adjustable rate loan.

The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. Initially, the trust fund would cover any expenses related to the foreclosure rescue plan, meeting a demand by Senate Republicans that taxpayers not pay for the program.

Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible, shutting out real estate speculators and owners of vacation homes. And lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value, a substantial loss in many housing markets.

Arizona Mortgage Team has a great post with all the details too.

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Tags: bill, Congress, housing rescue, Mortgages
Categories: Congress and Government, Debt, Economics, FHA
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David Brooks wrote a thought provoking column today on money and debt. I think he makes a great point about “The Great Seduction” of debt and the impact on todays society. He makes some interesting observations on how powerful a role financial discipline played as the United States became the wealthiest nation on earth:

The United States has been an affluent nation since its founding. But the country was, by an large, not corrupted by wealth. For centuries, it remained industrious, ambitious and frugal.

Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened. The country’s moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money.

I think the bubble economy we’ve seen the past few years bears this point out beautifully. To consider that the US economy has been through two huge bubbles since I graduated from college in 1997 is quite staggering. The first being the dot com bubble and the second is of course the housing (mortgage) one.

The explosion in personal consumer debt and the growing economic disparity cannot be good things for the long term health of the economy. I also think that the borrow and spend mentality that has overtaken the entire country starting from the President all the way down to teenagers applying for credit cards must be rectified at some point if this country to continue to be a wealthy nation. Otherwise it will go the way of Argentina in the late 1990s.

I found Brooks column very thoughtful and

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Tags: debt, economy, financial prudence
Categories: Congress and Government, Debt, Economics
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A few weeks ago I started a weekly series on the mortgage market attempting to cover important elements from news items to blog posts. Regular readers know I slacked off on this promise after week one. However, I must say I did have good intentions. Inertia is the main issue here and converting potential energy into kinetic energy is difficult. However, I have not forgotten my desire to keep a weekly mortgage round up alive and kicking.

In that spirit, today I want to bring to your attention a brilliant post by the North Phoenix Agent, Heather Barr. She has proposed a very practical way to fix the foreclosure mess. Since she doesn’t trust any of the “big three” presidential candidates to offer anything that would work (she does admire the Obama overall theme though). So in the spirit of citizen government Heather proposes her own “real world” solution. This is a great post and a wonderful read. If only our leaders could think like her!

If you haven’t read it already, then head on over to the North Phoenix Agent Blog. We’d all love to hear from you on what you thought about her plan - so leave your comments. If you like the plan then maybe we can convince one of the candidates to select Heather as their running mate? I’ve already made a campaign sticker!

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Tags: foreclosure, Mortgages, Real Estate, subprime
Categories: Economics, Real Estate, Subprime Mortgages
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April 15th - the day you render on to Caesar what is Caesars. And how does Caesar spend your hard earned money. Below is a useful pie chart that breaks it down for us simple minded folks.

From Josh Patashnik at The New Republic.

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Tags: breakdown, government spending, tax
Categories: Congress and Government, Economics
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Senator McCain reversed his position to let the market sort out the mortgage mess. Yesterday he talked about “using all the resources of this government and great nation to create opportunity and make sure that every deserving American has a good job and can achieve their American dream.” This is in sharp contrast to his comments on March 25th when he said:

I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.

I have much admiration for Senator McCain. In fact he is my man this year - especially considering the fact that the Democrats can’t get their act together and seem to offer nothing but the same old “government fixes” and have not demonstrated to me that they are capable of strong leadership. The fact that Hillary is offering to spend $30 billion to fix the mortgage mess, just makes me scratch my head in complete and utter disbelief. The main reason why I’ve become more and more of an economic conservative is because I think one of the fundamental problems of the US economy is overspending by the federal government.

To think that President Bush in 2002 was the first president to sign a $2 trillion budget and will be the first to sign a $3 trillion budget is mind boggling! It’s almost like we’re building a house of cards that will one day just collapse on its own weight. I know the smart types will have a lot of “intelligent” ways of explaining this, but from a gut check point of view, simply spending by printing more money just doesn’t seem right. Borrowing and spending doesn’t seem right either. To think that the bill will never come due is just silly and irresponsible.

Having said that Senator McCain is offering a modest proposal to help struggling homeowners. It would help 200,000 to 400,000 homeowners and cost $3 billion to $10 billion. His program would apply to people who were falling behind on mortgage payments on their primary residences. These homeowners would need to demonstrate that they would be able to meet the terms of a new, 30-year fixed-rate mortgage.

Senator Obama also has a massive government bail out program for homeowners. However, I found this bit of news kind of interesting:

Barack Obama went to New York Thursday and blamed lobbyists, greedy businessmen and complacent Washington politicians for creating “an ethic of greed” that led to today’s foreclosure crisis.

Not long after he left the stage, the Democratic presidential hopeful attended a fundraiser held by his campaign in a room in the Manhattan headquarters of Credit Suisse, one of the major investment companies caught up in the subprime lending mess.

I guess the two step dance is an integral part of the art of politics. It is practiced by all who seek the nations highest office and involves speaking from both sides of the mouth and relying on people to not “remember”. No wonder I’m not a politician!

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Tags: john mccain, mess, Mortgages, subprime
Categories: Banker, Economics, Mortgages
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Some late breaking news on a Friday night:

WASHINGTON - The Bush administration is proposing a sweeping overhaul of the way the U.S. financial industry is regulated.

In an effort to deal with the problems highlighted by the current severe credit crisis, the new plan would give major new powers to the Federal Reserve, according to a 22-page executive summary obtained Friday by The Associated Press.

The proposal would designate the Fed as the primary regulator of market stability, greatly expanding the central bank’s ability to examine not just commercial banks but all segments of the financial services industry.

I honestly don’t know enough about this at this time to really say anything about it, but it sounds like a step in the right direction. Apparently details will be forthcoming on Monday.

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Tags: Bush Administration, federal reserve, Regulation
Categories: Congress and Government, Economics
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Robert Novak, one of my favorite political commentators reveals the inside scoop on who made the decision to bail out Bear Sterns and why there is cause for concern. He says the decision was “approved in private by unelected officials” and reports that “a Fed official conceded privately this week that “we may have crossed a line” in jumping into Bear Stearns.”

His column today starts out making this claim:

The Federal Reserve’s unprecedented bailout of Bear Stearns was crafted not at the White House or Treasury, but in secret by a New York central banker whose name is unknown to Washington power brokers and was a Clinton administration presidential appointee.

Later on he says:

If they had blundered into financial failure, the community banks complained, they would not be bailed out, but instead investigated and prosecuted. “Too big to fail,” therefore, becomes “too big to be punished.”

For those not familiar, Novak is a respected conservative journalist who is noted for bringing to light the inner workings of the “Establishment”. So, it’s not paranoia that I’m passing along here.

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Tags: bear sterns, federal reserve, novak
Categories: Congress and Government, Economics
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