The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.
Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.
There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.
The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.
But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.
Could anything be sweeter for the big banks? No.
The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.
One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the "enforcer" which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.
But now the entire legal basis for that privatized-profits, socialized losses system has dissolved. The foreclosure scandal…
And it appears this is one ‘reform’ that can’t be blamed on ‘the liberals’ and Obama. Crony Capitalism is not a political party, it’s a way of life in which power and greed are the measure of all things.
Well, some of the New York real estate developers are poor, relatively speaking, compared to an investment banker or a trader pulling down a fifty million dollar annual bonus for packaging fraudulent financial instruments. But they are all rich in their well connected friends in the government.
The kleptocracy never sleeps; crony capitalism knows no bounds…
The federal government may soon come to the rescue of stalled luxury condominiums in Manhattan.
Manhattan luxury condominiums known for posh amenities and high price tags are beginning to apply for Federal Housing Administration backing.
Condominium developers hope to open financing opportunities for their purchasers as well as guarantee a little protection for themselves. Not only will lending institutions be more willing to lend to purchasers with FHA backing, but the FHA will pay the mortgage should a home buyer default.
The FHA loosened the condo rules because of “market conditions,” Lemar Wooley, an agency spokesman told Bloomberg.com
The administration recently agreed to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo in Match, according to Bloomberg. That deal allowed buyers to make a down payment of as low as 3.5 percent in a complex where apartments run up to $3 million…
As you may know, and as we suggested the other day, the ADP report, based on payroll data from American business, showed a loss of 84,000 jobs in December, versus expectations of a loss of only 75,000 jobs.
We also suggested that this Friday’s US Non-Farm Payroll Report will be a positive surprise, at least 10,000 or so jobs to the good. Here are the details.
The Imaginary Jobs component, also known as the Bureau of Labor Statistics Birth-Death Model, will contribute approximately 72,000 jobs allegedly created by small businesses with less credible evidence than a Bigfoot or an Elvis sighting.
Not that they are always positive. Each January there is an enormous job loss shown here, in the neighborhood of about 350,000 jobs. The reason they do this is because the seasonal adjustment factor is so huge in January that this imaginary jobs number does not matter, since it is subtracted (and added) from the numbers prior to the seasonal adjustment.
We can expect this model to continue to show positive annual jobs growth until the End of Days, and perhaps longer than that if there is fireproof paper in the afterlife. [click on tables and charts to enlarge]
The ‘headline jobs number’ which is the Seasonally Adjusted Number will be a positive 58,000 jobs, and provide much joy and exultation in Washington and on Wall Street. Pundits like Paul Krugman will caution that the economy is still fragile and a second stimulus bill will be required to insure these positive gains.
What is the basis for these projected numbers? The same basis used by the BLS – nothing. At least nothing connected with the real world. These are the numbers that bureaucrats might mindlessly crank out in response to the desire of their bosses for certain targets, a phenomenon well understood by most corporate financial staffs.
We drew the trendline on that chart earlier this year, assuming that the government would wish to show a steady job increase with a positive number by December, or at least January. So far we have not been disappointed, although there have been quite a few revisions along the way.
There will also be revisions this time again, with some jobs added and borrowed from prior months to help
At first it was just the smaller banks, but now the big boys have joined the collective cry against FASB 166 and 167, according to which beginning January 1, banks will likely see up to $900 billion in off-balance sheet assets being onboarded to bank balance sheets. This would likely mean banks need to dramatically increase their Tangible and Tier 1 Capital to offset the capital needed to account for possible asset deterioration. And that, of course, is unacceptable to banks who know too well the deep shit they still find themselves in.
The irony is that banks, which have already virtually halted lending to those in need of credit, are threatening they will cut any available credit even futher. How anyone could admit to being stupid enough to believe this latest episode of Mutual Assured Destruction courtesy of the US banking system is a mystery. And yet this is precisely the type of "gun against the head" negotiating that Max Keiser was fulminating against, and that the banks are once again perpetrating:
“With any increase in required capital, a banking institution is likely to reduce the amount of lending using such securitization vehicles, as well as other lending,” the American Bankers Association wrote in a letter to regulators. The association, the nation’s biggest banking lobby, suggested that any transition period should be three years at least, with no change in regulatory capital impact in the first year.
Taking a cue from the ABA, the big 3 record earners have decided to join in: last thing one would want is JPMorgan not earning yet another record amount in Q4. First Citi chimes in:
Banks should be given three years to raise capital for offsetting assets and liabilities that must be brought onto their balance sheets, Citigroup Chief Financial Officer John Gerspach said yesterday in a letter to regulators. Requiring banks to “assume the risk-based capital effects immediately, or even over one year, is an undeniably severe penalty,” he wrote.
Then you have record earner JPMorgan:
The capital requirements “will have a significant and negative impact on the amount of consumer-conduit funding that will be made available by U.S. banks,” said
Jesse of Jesse’s Café Américain posted on the important subject of deregulation in his last post, “Why the Austrian, Keynesian, Marxist, Monetarist, and Neo-Liberal Economists Are All Wrong.” In it, he opined that it is entirely wrong-headed to assume everything will be alright if we just let free markets work their magic. I want to take his thoughts one step further because I think there is a misperception about what the free market entails and why the deregulation movement went astray.
To review, Diamond won a Pulitzer Prize in 1998 for his book Guns, Germ and Steel, which is a narrative of how Eurasian societies as a whole have dominated others throughout the last 10,000-odd years. One of his basic premises is that Eurasian societies are stratified, and hence less egalitarian, allowing individuals to specialize. The hierarchy and specialization have combined to give these societies advantages that less stratified (and less resource-rich) societies do not have.
The corollary of this – and where I want to concentrate – is that advanced societies are not egalitarian. Some will de facto have more, and others will have less. Moreover, as Diamond asserts, this lack of equality becomes, in essence, a kleptocracy i.e. a reverse Robin Hood organization where the elites enrich themselves at the expense of the others.
This has been the reality in all advanced societies based on agriculture, manufacturing and services for the last 10,000-odd years. This social structure has been net beneficial to the societies employing it in comparison to more simple societies – a case of a rising tide lifting all boats. So, on some level, kleptocracy is nothing about which to get irate.
The problem is that not all kleptocracies are created equal. At some point, the ruling class overreaches in a way that subtracts from rather than adds to the overall…
Apache Corporation (NYSE, Nasdaq: APA) and its subsidiaries today announced an agreement to sell producing oil and gas assets in the Deep Basin area of western Alberta and British Columbia, Canada, for $374 million.
Incremental to Apache's earlier $2 billion share re-purchase announcement, the company plans to use the proceeds of this transaction to buy back Apache common shares under the 30-million-share repurchase program that was authorized by Apache's Board of Directors in 2013.
Apache is selling primarily dry gas-producing properties comprising 622,600 gross acres (328,400 net acres) in the Ojay, Noel and Wapiti areas in Alberta and British Columbia. In the Wapiti area, Apache will retain 100 percent of its working interest in horizons below the Cre...
“However, both indexes are at or near MAJOR support levels. That means that we are ‘in the zone’ for a bounce of some sort in the next couple of days.” And a bounce is exactly what we got: But as you can see even with last week’s bounce, we are still locked in a downtrend. As we look ahead to next week, should we break out of the downtrend to the upside, we’ll want to take advantage of buying stocks doing the same. And should we remain in a downtrend, we want to short stocks that are also locked in downtrends. As we’ve said before: Success in the market comes from trading stocks in tandem with the indexes. Should the markets break higher, then FF is an excellent long side candidate: Here we have a leading stock that like the Nasdaq is in a min...
Brave souls who write about stocks always subject themselves to potential embarrassment if they take a stand on the future movement of their selected company. Including both a price target and a time horizon makes you accountable if things don’t go as predicted.
For that reason many media pundits much prefer to explain what’s already happened rather than sticking their necks out. They would rather justify the (supposed) reason...
There are many creative ways to screw up your retirement. Let me show you how it’s done.
Supporting adult children. My wife Jo and I have friends with an unmarried, unemployed daughter who had a child. Our friends adopted their grandchild and are now in their late sixties raising a kid in grade school. The same daughter had a second child, and they adopted that one too. When she announced she was pregnant a third time, they finally said, “Enough! It’s time for a third-party adoption.”
Last time I spoke with them, their unemployed daughter and her boyfriend were living in their basement, neither contributing financially nor lifting a finger around the house. What began as a temp...
In the days before the Geneva "de-escalation" conference (and coincidentally, days after the secret visit of CIA director Brennan to Kiev), the top story across western media was the "undisputed" proof that east-Ukraine, populated by "terrorist separatists", is preparing to unleash a neo-nazi wave against local jews, when a leaflet was unveiled, beckoning the Jewish population to register and declare their assets.
Shares in Chipotle Mexican Grill Inc. (Ticker: CMG) opened higher on Thursday morning, rising more than 6.0% to $589.00, after the restaurant operator reported better than expected first-quarter sales ahead of the opening bell. But, the stock began to falter just before lunchtime on concerns the burrito-maker will increase menu prices for the first time in three years. The price of Chipotle’s shares have since fallen into negative territory and currently trade down 3.5% on the session at $532.89 as of 1:50 p.m. ET.
Last week’s market performance was nasty again, especially for the Small-cap Growth style/cap, down 4%. Large-caps faired the best, losing only 2.7%. That’s ugly and today’s market seemed likely to be uglier today with escalating tensions over the weekend in Ukraine.
But once again, positive economic trumped the beating of the war drums. Retail Sales jumped up 1.1% over a projected 0.8% and last month’s tepid 0.3%, which was revised up to 0.7%. While autos led, sales were up solidly overall. Business inventories were about as expected with a positive tone. Citigroup (C) handily beat estimates to add to the morning’s surprises. As a result, the market was positive through most of the day, led by the DJI, up 0.91%, and the S&P 500, up 0.82%. NASDAQ had a less...
[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process.
The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...
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I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.
And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference. Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014? The Biotech ETF beat the S&P by better than 3 points.
As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...
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