Bailouts | - Part 3

Friday Morning Links: Mortgage Deal Edition

Here are those mortgage deal links I mentioned in the Friday Morning Links post a couple hours ago. It was another one of those days when, in the process of collecting news stories for the links post, there was a virtual avalanche of reporting and opinions on what the Justice Department hath wrought with this deal.

A ‘deadbeat’ bailout – NY Sun
The Mortgage Deal: A Reality Check – NPR
Mortgage deal: What the critics say – CNN/Money
U.S. banks agree to $25 billion in homeowner help – Reuters
Settlement launches foreclosure reckoning – Washington Post
Why the Foreclosure Deal May Not Be So Hot After All – Taibblog
Why Millions Won’t Get Help From Big Mortgage Settlement – ProPublica
Top Twelve Reasons Why You Should Hate the Mortgage Settlement – Naked Capitalism
Foreclosure Settlement Falls Short, Still Worth the Wait: View – Bloomberg
Is The Foreclosure Settlement A Shadow Bailout For Broke California – Zero Hedge
What the foreclosure settlement means for you – CNN/Money
Mortgage Settlement and Negative Equity – Calculated Risk
Robo-Deal Is All About Lowering Mortgage Principal – CNBC
Banks Not Off Hook With $25B Mortgage Agreement – Bloomberg
Mortgage Plan Gives Billions to Homeowners, but With Exceptions – NY Times
Florida Homeowners Find Little to Cheer in Deal With ‘Gangsters’ – Bloomberg
Mortgage Deal Props Up California House of Cards – Bloomberg
Cramer: This Mortgage Settlement Is Huge – The Street
Foreclosure Deal to Spur U.S. Home Seizures – Bloomberg
The Mortgage Settlement Is Fine – DealBreaker

I’d be lying if I said I’d read all of these (or more than a couple for that matter), but I intend to take a look here this morning. Just based on the headlines, it would appear that the deal is getting a mixed reaction.

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Stockman on the Latest Bank Bailout Proposal

Former Reagan Administration budget director David Stockman doesn’t seem to think too much of the Obama Administration’s proposal to refinance underwater homeowners at up to 140 percent loan-to-value and he shared his views at The Daily Ticker.

Says Stockman:

This is ultimately, at the end of the day, a bailout for JP Morgan and Wells Fargo. They’re the big writers of second mortgages and home equity lines. Those – and there’s two or three or four hundred billion dollars in the top three or four banks – are in great jeopardy in the case of of homeowners who have mortgages, that are primary mortgages, that are way under water on primary mortgages and are likely to default or throw in the keys at some point down the road.

Good point…

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Wall Street ❤ Mitt Romney

According to this CNN/Money report, it would appear that Wall Street has a new favorite candidate in 2012 after candidate Barack Obama, back in 2008, raised more money from the financial services industry than any other candidate in history.

New boss, same as the old boss … and the ones before that.

Maybe we’ll get a good third party candidate this year…

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On Economists and Psychopaths

After reading through some of the recently released transcripts from the 2006 Federal Reserve policy meetings, it occurred to me for about the thousandth time that economists are particularly ill-suited to oversee an economy where the financial system is, from time to time, run by psychopaths each trying to one-up the other.

During normal times, economists’ models of how the world works seem to function reasonably well, but when a multi-decade orgy of money and credit creation came to a head a few years back, they were completely unaware of how badly some people were acting and how contagious this was.

The central bank meets this week and is expected to revamp how they communicate their thinking about monetary policy to the world, but, maybe they should spend more time figuring out how to better observe what’s going on in the world – looking beyond the charts, tables, and models that they had their noses buried in back in 2006, oblivious to the looming crisis in housing and credit markets.

It was all there to see for anyone willing to make a modest effort to get out into the real world and look around.

Wild-eyed buyers lined up for blocks to buy new condos and mortgage brokers with barely a high school education were raking in hundreds of thousands of dollars a year in commissions by peddling all kinds of “exotic” mortgages to borrowers who, in many cases, didn’t really understand what they were signing.

As we’ve come to find out, there was a good deal of fraud involved here by both lenders and borrowers as few seemed to care about how their individual actions might affect others in the fullness of time.

You might say that a good asset bubble brings out the psychopath in many of us.


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Sorry, but after downloading the transcript(.pdf) for the January 31st, 2006 FOMC meeting with the intention of looking at all the praise heaped on Alan Greenspan on his last day as Fed Chairman in order to relay selected misguided quotes in this post, the 78 page length of the document proved too daunting, especially after all the joking around in the beginning of the document at a time that the central bank could actually have done something to prevent or mitigate the financial market disaster that followed a few years later.

Instead, relying on the many poor souls in the financial media who had to slog through transcripts for all eight meeting that year, we find that Treasury Secretary Tim Geithner (New York Fed President at the time) appears to have been the most misguided as to the legacy of the outgoing Fed chief when he noted:

I’d like the record to show that I think you’re pretty terrific, too. [Laughter] And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative. [Laughter]

Surely you can understand better now…

More confirmation of the Peter Principle and that economists are particularly ill-suited to run an economy were provided in this assessment of the Greenspan tenure at the Fed by San Francisco Fed President Janet Yellen who, since, has been promoted to Fed Vice Chair:

Needless to say, it’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. And if I might torture a simile, I would say, Mr. Chairman, that the situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot. [Laughter]

Again with the laughter.


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