The Truth! The Truth? Bankers Can’t Handle the Truth!!!
by Zero Hedge - November 30th, 2009 1:27 pm
Courtesy of Reggie Middleton
I have finally updated my Alt-A and Subprime delinquency, charge-off and loss data using FDIC, NY Fed, Corelogic, First American, and Bloomberg (among others) as sources. If you thought things looked bad last year or this spring, they are getting worse – with no reprieve for the 3rd quarter despite the extreme amounts of liquidity and capital thrown at the situation by central bankers and the US government. As soon as I started writing this piece, CNBC comes out with “US to Push Mortgage Lenders To Modify More Home Loans: The US Treasury announced plans to push lenders to modify more loans after the administration’s $75 billion housing rescue plan, called Making Home Affordable, fell short and foreclosures continued rising.“
Hmmm… $75 billion is a lot of money. Mayhap the problem is that the banks know how useless pushing on a string is, or mayhap $75 billion is not enough to stem $304 billion (and counting) in Alt A and subprime losses that are still in the pipeline (see graphic below).
It gets worse though. Let’s glance at the non-conforming loan losses that have already occurred in comparison to the SCAP projections that justified the return of TARP in many cases. Recovery rates had the illusion of increasing ever so slightly due to an increase in prices as illustrated by the Case Shiller index. I have expressed my doubts about this housing price recovery for several reasons, the least of which is the construction flaws in the index itself which fail to capture the nature of the transient price increases, namely the activity of short term investors and flippers (see On the Latest Housing Numbers). There are some areas that have witnessed some firming of pricing though, but that firmness is the result of the Fed and Treasury trying to blow another bubble within a bursting bubble and is more than outdone by the rampant deterioration in credit quality of loans that result in the dumping of foreclosures -> REOs -> short investor turnaround sales/flips (via investors, which are not captured by Case Shiller, hence the illusion of a firming market in the lower end of housing prices) all over the place.
Subprime delinquency, charge-off and foreclosure rates are still flying through the…
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DiggThe Truth! The Truth? Banker’s Can’t Handle the Truth!!!
by Zero Hedge - November 30th, 2009 1:27 pm
Courtesy of Reggie Middleton
I have finally updated my Alt-A and Subprime delinquency, charge-off and loss data using FDIC, NY Fed, Corelogic, First American, and Bloomberg (among others) as sources. If you thought things looked bad last year or this spring, they are getting worse – with no reprieve for the 3rd quarter despite the extreme amounts of liquidity and capital thrown at the situation by central bankers and the US government. As soon as I started writing this piece, CNBC comes out with “US to Push Mortgage Lenders To Modify More Home Loans: The US Treasury announced plans to push lenders to modify more loans after the administration’s $75 billion housing rescue plan, called Making Home Affordable, fell short and foreclosures continued rising.“
Hmmm… $75 billion is a lot of money. Mayhap the problem is that the banks know how useless pushing on a string is, or mayhap $75 billion is not enough to stem $304 billion (and counting) in Alt A and subprime losses that are still in the pipeline (see graphic below).
It gets worse though. Let’s glance at the non-conforming loan losses that have already occurred in comparison to the SCAP projections that justified the return of TARP in many cases. Recovery rates had the illusion of increasing ever so slightly due to an increase in prices as illustrated by the Case Shiller index. I have expressed my doubts about this housing price recovery for several reasons, the least of which is the construction flaws in the index itself which fail to capture the nature of the transient price increases, namely the activity of short term investors and flippers (see On the Latest Housing Numbers). There are some areas that have witnessed some firming of pricing though, but that firmness is the result of the Fed and Treasury trying to blow another bubble within a bursting bubble and is more than outdone by the rampant deterioration in credit quality of loans that result in the dumping of foreclosures -> REOs -> short investor turnaround sales/flips (via investors, which are not captured by Case Shiller, hence the illusion of a firming market in the lower end of housing prices) all over the place.
Subprime delinquency, charge-off and foreclosure rates are still flying through the…
Ratigan Rips Apart Bernanke’s Biased And One-sided Defense Of The Fed; More Perspectives From Sen. Sanders
by ilene - November 30th, 2009 12:53 pm
Ratigan Rips Apart Bernanke’s Biased And One-sided Defense Of The Fed; More Perspectives From Sen. Sanders
Courtesy of Tyler Durden
A follow-on interview by Dylan Ratigan of Senator Sanders confirms what everyone knows, that Bernanke is "part of the problem. The middle class in America is collapsing. We’ve seen incredible greed and recklessness and illegal behavior on Wall Street. This guy was running the ship and he didn’t see it, and he allowed it to happen. Bernanke served in the Bush administration as Chairman of his economic advisors in 2005. The people last year voted for change and it makes no sense to me that President Obama is reappointing somebody who was appointed by Bush, who is a conservative republican, who missed the boat on the most significant economic crisis since the Great Depression. We need a whole new direction in the Fed and in our economic policies. A direction that stands up for change not for the rich, not for the top 1%, not for the giant financial institutions, but for the working class and the middle class of this country, and nobody, but nobody thinks that Ben Bernanke is that person."
And another logical question:
"If the taxpayers of this country have spent $700 billion bailing out Wall Street because they are too big to fail, why is it that 3 out of the 4 largest financial institutions today are bigger than they were before the bailout, why is it ok that 4 large financial institutions write half the mortgages, two thirds of the credit cards, and control 40% of the deposits. The bottom line to me is that the middle class in this country is collapsing. We have seen this trend downward for many many years. We need a new direction. We need President Obama to take this country in a new way,new economic policies and you don’t appoint the same old guys if you’re going to do that."
Visit msnbc.com for Breaking News, World News, and News about the Economy
Ratigan Rips Apart Bernanke’s Biased And One-sided Defense Of The Fed; More Perspectives From Sen. Sanders
by Zero Hedge - November 30th, 2009 12:53 pm
Courtesy of Tyler Durden
A follow-on interview by Dylan Ratigan of Senator Sanders confirms what everyone knows, that Bernanke is “part of the problem. The middle class in America is collapsing. We’ve seen incredible greed and recklessness and illegal behavior on Wall Street. This guy was running the ship and he didn’t see it, and he allowed it to happen. Bernanke served in the Bush administration as Chairman of his economic advisors in 2005. The people last year voted for change and it makes no sense to me that President Obama is reappointing somebody who was appointed by Bush, who is a conservative republican, who missed the boat on the most significant economic crisis since the Great Depression. We need a whole new direction in the Fed and in our economic policies. A direction that stands up for change not for the rich, not for the top 1%, not for the giant financial institutions, but for the working class and the middle class of this country, and nobody, but nobody thinks that Ben Bernanke is that person.“
And another logical question:
“If the taxpayers of this country have spent $700 billion bailing out Wall Street because they are too big to fail, why is it that 3 out of the 4 largest financial institutions today are bigger than they were before the bailout, why is it ok that 4 large financial institutions write half the mortgages, two thirds of the credit cards, and control 40% of the deposits. The bottom line to me is that the middle class in this country is collapsing. We have seen this trend downward for many many years. We need a new direction. We need President Obama to take this country in a new way,new economic policies and you don’t appoint the same old guys if you’re going to do that.”
Visit msnbc.com for Breaking News, World News, and News about the Economy
Former Drexel Burnham Lambert Chief Fred Joseph Has Died
by Zero Hedge - November 30th, 2009 12:45 pm
Courtesy of Marla Singer
Fred Joseph, former Drexel head, avid bowhunter and (not least) personal friend and colleague to some of us at Zero Hedge, has died at 72.
Zero Hedge’s thoughts are with his family today.
The Tax Code ENCOURAGES Leverage
by Zero Hedge - November 30th, 2009 12:45 pm
Courtesy of George Washington
Among the most prophetic voices prior to the economic crash was UCLA economics professor Harold H. Somers, who warned in 1991 that revisions to the tax code would increase leverage, which could lead to economic disaster:
The result is to tilt the well-worn playing field even more in favor of leveraging, leading to the possibility of another leverage frenzy and debacle at some time in the future.
Professor Sommers explained:
The complete history of the causes of the junk bond debacle of 1989 and 1990 is yet to be written. But the tax incentive must have a prominent place in any comprehensive work. This comment applies to long-term debt where the interest deduction can be a major factor; short-term debt may be dominated by other considerations.
What is involved is essentially the shield against income tax that is provided by corporate debt compared with the shields that are provided for equity by the income tax rules …
Former President of the St. Louis Federal reserve Bank – William Poole – agrees in a new paper:
A straightforward fix for excessive leverage can be achieved through the tax system. Companies borrow, in part, because they believe that debt capital is cheaper than equity capital. That is certainly the case under the U.S. corporate tax system because interest is a deductible business expense in calculating income subject to tax whereas dividends are not deductible.
Excessive leverage is highly destabilizing to the financial system (see this, for example). If a simple fix to the tax code could substantially reduce leverage, I’m all for it.
Poole recommends the gradual phasing-in of changes to the tax code to reduce leverage:
Interest deductibility could be phased out over the next 10 years. Next year, 90 percent of interest would be deductible; the following year, 80 percent would be deductible, and so forth, until interest would no longer be deductible at all. The same reform would apply to all business entities; partnerships, for example, should not be able to deduct interest if corporations cannot.
With this simple change, the federal government would encourage businesses and households to become less leveraged. We have learned that leverage makes not
…
The Tax Code ENCOURGES Leverage
by Zero Hedge - November 30th, 2009 12:45 pm
Courtesy of George Washington
Among the most prophetic voices prior to the economic crash was UCLA economics professor Harold H. Somers, who warned in 1991 that revisions to the tax code would increase leverage, which could lead to economic disaster:
The result is to tilt the well-worn playing field even more in favor of leveraging, leading to the possibility of another leverage frenzy and debacle at some time in the future.
Professor Sommers explained:
The complete history of the causes of the junk bond debacle of 1989 and 1990 is yet to be written. But the tax incentive must have a prominent place in any comprehensive work. This comment applies to long-term debt where the interest deduction can be a major factor; short-term debt may be dominated by other considerations.
What is involved is essentially the shield against income tax that is provided by corporate debt compared with the shields that are provided for equity by the income tax rules …
Former President of the St. Louis Federal reserve Bank – William Poole – agrees in a new paper:
A straightforward fix for excessive leverage can be achieved through the tax system. Companies borrow, in part, because they believe that debt capital is cheaper than equity capital. That is certainly the case under the U.S. corporate tax system because interest is a deductible business expense in calculating income subject to tax whereas dividends are not deductible.
Excessive leverage is highly destabilizing to the financial system (see this, for example). If a simple fix to the tax code could substantially reduce leverage, I’m all for it.
Poole recommends the gradual phasing-in of changes to the tax code to reduce leverage:
Interest deductibility could be phased out over the next 10 years. Next year, 90 percent of interest would be deductible; the following year, 80 percent would be deductible, and so forth, until interest would no longer be deductible at all. The same reform would apply to all business entities; partnerships, for example, should not be able to deduct interest if corporations cannot.
With this simple change, the federal government would encourage businesses and households to become less leveraged. We have learned that leverage makes not
…
Climate: We Can ALL Agree On Two Things
by Zero Hedge - November 30th, 2009 12:43 pm
Courtesy of George Washington
Whatever you think about the leaked emails showing that “tricks” were used to “hide the decline” in the climate data, and the fact that the original source data showing historical climate information was destroyed, you should agree on two things.
The Carbon Footprint of War
First, as Harvey Wasserman notes, continuing the wars in Afghanistan and Iraq will more than wipe out any reduction in carbon from the government’s proposed climate measures. Writing about the escalation in the Afghanistan war, Wasserman says:
The war would also come with a carbon burst. How will the massive emissions created by 100,000-plus soldiers in wartime be counted in the 17% reduction rubric? Will the HumVees be converted to hybrids? What is the carbon impact of Predator bombs that destroy Afghan families and villages?
The continuance of the Afghanistan and Iraq wars completely and thoroughly undermines the government’s claims that there is a global warming emergency and that reducing carbon output through cap and trade is needed to save the planet.
I can’t take anything the government says about carbon footprints seriously until the government ends the unnecessary wars in Afghanistan and Iraq. For evidence that the Iraq war is unnecessary, see this. Read this for evidence that the U.S. could have taken Bin Laden out years ago and avoided a decades long war in Afghanistan.
War is also very harmful to the economy. See this, this and this.
Carbon Trading
Second, the proposed solution to global warming – cap and trade – is a scam. Specifically:
- The economists who invented cap-and-trade say that it won’t work for global warming
- Many environmentalists say that carbon trading won’t effectively reduce carbon emissions
- Our bailout buddies over at Goldman Sachs, JP Morgan, Morgan Stanley, Citigroup and the other Wall Street behemoths are buying heavily into carbon trading. As University of Maryland professor economics professor and former Chief Economist at the U.S. International Trade Commission Peter Morici writes:
Obama must ensure that the banks use the trillions of dollars in federal bailout assistance to renegotiate mortgages and make new loans to worthy homebuyers and businesses. Obama must make certain that banks do not continue
…
Willem Buiter Picked By Citi In First Round Of Chief Economist Draft, Promptly Adopts "Bianco-esque" Party Line
by Zero Hedge - November 30th, 2009 12:37 pm
Courtesy of Tyler Durden
With Citigroup’s latest Chief Economist addition in the face of one Willem Buiter who earlier ironically had said that “Citigroup [was] a conglomeration of worst-practice from across the financial spectrum” now facing much more pro-cyclical scrutiny, it is not surprising that earlier he promptly picked up the party line and stated in a Bloomberg TV interview that Dubai is “not systemically significant.” The jury is still out on what the full fallout of the massive CRE collapse in the middle east, which is basically what Dubai was a levered play on, will cost the developed world. Nonetheless, one does get flashbacks to many other short-sighted pundits (some long since gone from the public arena, others who are about to be renominated for Fed Chairman positions) who claimed that subprime was also comparably contained. Time and a few hundred billions in additiona bailouts will determine if Citi’s new macro brain is proven right.
Willem Buiter Picked By Citi In First Round Of Chief Economist Draft, Promptly Adopts “Bianco-esque” Party Line
by Zero Hedge - November 30th, 2009 12:37 pm
Courtesy of Tyler Durden
With Citigroup’s latest Chief Economist addition in the face of one Willem Buiter who earlier ironically had said that “Citigroup [was] a conglomeration of worst-practice from across the financial spectrum” now facing much more pro-cyclical scrutiny, it is not surprising that earlier he promptly picked up the party line and stated in a Bloomberg TV interview that Dubai is “not systemically significant.” The jury is still out on what the full fallout of the massive CRE collapse in the middle east, which is basically what Dubai was a levered play on, will cost the developed world. Nonetheless, one does get flashbacks to many other short-sighted pundits (some long since gone from the public arena, others who are about to be renominated for Fed Chairman positions) who claimed that subprime was also comparably contained. Time and a few hundred billions in additiona bailouts will determine if Citi’s new macro brain is proven right.
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