SUBHEAD: Pull the rug from under the Fed by closing down Fannie Mae, Freddie Mac, Ginnie Mae, and the FHA.
By Raul Ilargi Meijer on 12 October 2009 in the Automatic Earth - http://theautomaticearth.blogspot.com/2009/10/october-12-2009-dont-audit-fed-pull-rug.html
Image above: Painting by Mark Bryan titled "The Tornado Men", 2004 From http://www.artofmarkbryan.com/the%20tornado%20men.html
You would expect the Obama administration to make a lot of happy green shoot noise if and when one of their economic programs shows signs of success, or can be made to look as if it does. So it’s a bit strange at first glance that it's been pretty much silent in the media regarding the fact that the $75 billion Making Home Affordable Program managed, three weeks earlier than expected, to modify 500,000 mortgages out of a total of 4 million envisioned. But that's only at first glance, though.
A second one reveals why the government and its spin team are not all that eager to shout this particular one from the rooftops. On Friday, one day after the "success" was announced, Elizabeth Warren's Congressional Oversight Panel issued a report that is as polite as it is highly critical about the program and its numbers, and states that the plan won't even be able to slow foreclosures, let alone halt them.. In the words of the New York Times:
On the other hand, the homeowners who have allegedly been "helped" have much less to be happy about, though most may have to wait a while before they find that out. The program, like everything other "help" the government is involved in, all the guarantees, the securities purchases and other support programs, depends for the difference between success and failure on one simple assumption. Home prices need to be kept from falling, at least by more a few percentage points. And that is a goal that will not be achieved.
Nor is all that desirable to start with. Higher real estate prices may be a boon for banks, they are a burden for buyers and, because of government-issues guarantees, for taxpayers. The stake the Federal Reserve and the Treasury now hold in the US housing market means that every American owns a substantial stake in everybody else's home. Now imagine that prices will fall another 25%, and you can start calculating some losses. They will run in the trillions of dollars. The Fed and the feds put another $1.2 trillion into the housing market in FY 2009 alone. The most important point is that none of these exorbitantly expensive initiatives manages to halt the increase in foreclosures; in fact, the rate is still accelerating.
America has an inventory that could satisfy all demand for more than two years, but builders come knocking for government support. Obviously, this madness has to stop somewhere. Fannie and Freddie take their share of the $1.2 trillion (the Fed now buys up their securities as soon as they are issued) and use part of it to sell foreclosed homes under a program that requires a mere 3% downpayment and for which no private mortgage insurance is needed.
The argumentation, for what I understand of it, is that the GSEs own the whole risk already anyway, so why bother with something as petty as prudence? Why indeed, since in the end the ownership of course lies not with Fannie and Freddie, but with you, the citizen and taxpayer. So when will it stop? When the mess has become too large to oversee, when the inventory glut and foreclosure waves cause prices to decrease so much, defying the flood of subsidies, that just about every single mortgage must be modified and over two-thirds are deeply underwater.
Or it could stop now. Congress might decline any additional demands for bail-out funds that are sure to come before the year is over, and wrap up Fannie and Freddie before they can cause any more damage. Or maybe it will stop here:
As for the banks who are not that big, the picture, as it is revealed through the media, is becoming clearer at a pretty rapid clip. 1000 bank failures over the next few years has turned into a widely accepted number, never mind that the FDIC didn't close a single on this week for the first time in months.
The 2009 total stands at 98, and for some reason we can only guess at, the decision was made to go over 100 only next Friday. Nice try, but commercial real estate is bursting at the seams, and scores of smaller banks have no chance of surviving that. Look, the core of America's economic problems lies in real estate. The only answer the government manages to come up with is throwing your money at it. That's the only answer it has for any economic problem it's faced with. The answer is sure to fail, because home prices are still much too high; all you need to do is look at the fast increasing numbers of foreclosures and job losses. And Congress has the key. Obama, Summers, Geithner and Bernanke have made it crystal clear that they have no intention of taking a break in their practice of throwing your money away to keep housing finance fees flowing in order to keep Wall Street satisfied.
Auditing the Fed is a useless initiative that only serves to divert attention away from what is really sinking the economy and putting you into debt faster and deeper than you can say "No Mas". Even if Congress has the legal authority to audit the Fed, which I very much doubt they have, it'll take many years to reach any sort of conclusion or even have any relevant books -fully- opened. What would be useful, however, is for Congress to demand (by refusing provide further funding) that the White House withdraw its support for Fannie Mae, Freddie Mac, Ginnie Mae, the FHA and all other channels that could potentially be used to prop up a dead market. Cutting off all government support for the real estate market can be done in a manner of weeks or months. Yes, the effects will be devastating.
But not nearly as bad as letting this multi-trillion dollar circus continue its mind-boggling contortionist act. Supporting homeowners is of course not a bad thing in itself, But if you pay attention, you can see that's not what the government is doing. It's supporting the banks on Tim Geithner's speed-dial instead, under the guise of homeowner support, and all the losses will be transferred to you, while most owners will lose their property and/or equity regardless. The whole call for that Fed audit is just an ill-guided attempt to make you look the other way, away from what really hurts. You, and your representatives can simply make it impossible for the Fed to keep buying mortgage securities, by making sure none are issued. Don't audit the Fed, pull the rug right from under its feet.
.
By Raul Ilargi Meijer on 12 October 2009 in the Automatic Earth - http://theautomaticearth.blogspot.com/2009/10/october-12-2009-dont-audit-fed-pull-rug.html
Image above: Painting by Mark Bryan titled "The Tornado Men", 2004 From http://www.artofmarkbryan.com/the%20tornado%20men.html
You would expect the Obama administration to make a lot of happy green shoot noise if and when one of their economic programs shows signs of success, or can be made to look as if it does. So it’s a bit strange at first glance that it's been pretty much silent in the media regarding the fact that the $75 billion Making Home Affordable Program managed, three weeks earlier than expected, to modify 500,000 mortgages out of a total of 4 million envisioned. But that's only at first glance, though.
A second one reveals why the government and its spin team are not all that eager to shout this particular one from the rooftops. On Friday, one day after the "success" was announced, Elizabeth Warren's Congressional Oversight Panel issued a report that is as polite as it is highly critical about the program and its numbers, and states that the plan won't even be able to slow foreclosures, let alone halt them.. In the words of the New York Times:
1711 out of 500,00, and even some of those are guaranteed to re-default. Obviously, there's not much of a success to report. At all. That is, not for the government. The lenders, who have probably already been paid fees for all 500,000 modifications, have more reason for joy.
- On Thursday, Treasury announced that 500,000 homeowners had since had their payments lowered on a trial basis, celebrating this as a milestone. But the report from the oversight panel directly challenged the administration’s characterizations. Most prominently, the panel had grave uncertainty about whether large numbers of the trial loan modifications — which typically run for three months — would successfully be converted to permanent terms.
- As of the beginning of September, only 1.26 percent of trial modifications that had made it through the three-month trial period had become permanent [..]
- As of Sept. 1, the Obama plan had produced 1,711 permanent loan modifications.
On the other hand, the homeowners who have allegedly been "helped" have much less to be happy about, though most may have to wait a while before they find that out. The program, like everything other "help" the government is involved in, all the guarantees, the securities purchases and other support programs, depends for the difference between success and failure on one simple assumption. Home prices need to be kept from falling, at least by more a few percentage points. And that is a goal that will not be achieved.
Nor is all that desirable to start with. Higher real estate prices may be a boon for banks, they are a burden for buyers and, because of government-issues guarantees, for taxpayers. The stake the Federal Reserve and the Treasury now hold in the US housing market means that every American owns a substantial stake in everybody else's home. Now imagine that prices will fall another 25%, and you can start calculating some losses. They will run in the trillions of dollars. The Fed and the feds put another $1.2 trillion into the housing market in FY 2009 alone. The most important point is that none of these exorbitantly expensive initiatives manages to halt the increase in foreclosures; in fact, the rate is still accelerating.
America has an inventory that could satisfy all demand for more than two years, but builders come knocking for government support. Obviously, this madness has to stop somewhere. Fannie and Freddie take their share of the $1.2 trillion (the Fed now buys up their securities as soon as they are issued) and use part of it to sell foreclosed homes under a program that requires a mere 3% downpayment and for which no private mortgage insurance is needed.
The argumentation, for what I understand of it, is that the GSEs own the whole risk already anyway, so why bother with something as petty as prudence? Why indeed, since in the end the ownership of course lies not with Fannie and Freddie, but with you, the citizen and taxpayer. So when will it stop? When the mess has become too large to oversee, when the inventory glut and foreclosure waves cause prices to decrease so much, defying the flood of subsidies, that just about every single mortgage must be modified and over two-thirds are deeply underwater.
Or it could stop now. Congress might decline any additional demands for bail-out funds that are sure to come before the year is over, and wrap up Fannie and Freddie before they can cause any more damage. Or maybe it will stop here:
Writedowns on Mortgage-Collection Servicing Make Even JPMorgan VulnerableLosses of $55 billion just on mortgage servicing. In just the 4 biggest banks. Sounds promising, doesn't it? But they'll survive, no matter what their losses. Too big to fail and all that. Sorry, Joe Blow, but the peace prize winner deems it necessary that you, who can't afford a home anymore or get a loan to buy one, fork over for those who can.
The four biggest U.S. banks by assets may have to take writedowns on $55 billion of mortgage- collection contracts after marking them up by $11 billion in the second quarter, casting a shadow over earnings. Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. wrote up the value of the contracts, known as mortgage-servicing rights or MSRs, by 26 percent in the quarter as mortgage rates climbed by about 0.35 percentage point. Net gains on the contracts added more than $1 billion to Wells Fargo’s record earnings in the quarter and $1 billion to JPMorgan’s first-quarter profit.
As for the banks who are not that big, the picture, as it is revealed through the media, is becoming clearer at a pretty rapid clip. 1000 bank failures over the next few years has turned into a widely accepted number, never mind that the FDIC didn't close a single on this week for the first time in months.
The 2009 total stands at 98, and for some reason we can only guess at, the decision was made to go over 100 only next Friday. Nice try, but commercial real estate is bursting at the seams, and scores of smaller banks have no chance of surviving that. Look, the core of America's economic problems lies in real estate. The only answer the government manages to come up with is throwing your money at it. That's the only answer it has for any economic problem it's faced with. The answer is sure to fail, because home prices are still much too high; all you need to do is look at the fast increasing numbers of foreclosures and job losses. And Congress has the key. Obama, Summers, Geithner and Bernanke have made it crystal clear that they have no intention of taking a break in their practice of throwing your money away to keep housing finance fees flowing in order to keep Wall Street satisfied.
Auditing the Fed is a useless initiative that only serves to divert attention away from what is really sinking the economy and putting you into debt faster and deeper than you can say "No Mas". Even if Congress has the legal authority to audit the Fed, which I very much doubt they have, it'll take many years to reach any sort of conclusion or even have any relevant books -fully- opened. What would be useful, however, is for Congress to demand (by refusing provide further funding) that the White House withdraw its support for Fannie Mae, Freddie Mac, Ginnie Mae, the FHA and all other channels that could potentially be used to prop up a dead market. Cutting off all government support for the real estate market can be done in a manner of weeks or months. Yes, the effects will be devastating.
But not nearly as bad as letting this multi-trillion dollar circus continue its mind-boggling contortionist act. Supporting homeowners is of course not a bad thing in itself, But if you pay attention, you can see that's not what the government is doing. It's supporting the banks on Tim Geithner's speed-dial instead, under the guise of homeowner support, and all the losses will be transferred to you, while most owners will lose their property and/or equity regardless. The whole call for that Fed audit is just an ill-guided attempt to make you look the other way, away from what really hurts. You, and your representatives can simply make it impossible for the Fed to keep buying mortgage securities, by making sure none are issued. Don't audit the Fed, pull the rug right from under its feet.
.
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