Sean is #1 Finally, Again!

\"Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It\’s in everybody\’s interest\" Professor, I could not believe you are quoting the MOST SINFUL Fed Bernanke here. This guy is known to LIE LIE LIE about LOW Inflation for the last 1 year in order to justify his insane rate cutting campaign to save his wall street friends. You are quoting Satan\’s work here.

Here\’s my take on this Bail Out plan:1) If one did not intervene when the bubble run-up, then there is Completely ZERO Justification to intervene when the bubble burst . If you only intervene during bubble burst, then you are essentially saying Government encourage and want to sustain bubble. 2) If a social worker profited (through job) from Housing and Credit Bubble, then it\’s COMPLETELY FAIR for him to suffer the consequence of Credit and Housing bust. Remember those wall street secretaries/door attendants/etc who get paid 20 months of BONUS year after year for doing nothing? . This cycle simply has to run its course. 3) I Somewhat believe in Darwin\’s theory. Those who really are intelligent and hardwork would not get much affected. Even if they are impacted, they will find an alternative job quickly — IT Software Specialist, Engineers, Scientist, etc. Remember, these workers are the backbones of america economy and future, not those salesperson related to Credit/Auto/Housing/Furniture/etc. It\’s o.k for these people to GO, because it\’s time for America to re-think its roots. 4) Blowing Bubble, and then try to sustain the bubble is NEVER the right strategy, since Alan Greenspan has already shown it — Allow and encourage Tech bubble, and then work with Bush to create Consumerism and Housing bubble.5) If you have the balls to suggest policy to SUSTAIN this housing bubble or prevent it from running its course, then it\’s only fair that you should also suggest future policy to PRICK The Bubble when they were young. We just cannot afford to blow bubbles after bubbles without any consequence. 6) I would vote for this bail out plan only if (i) All housing SPECULATORS receving aid have their credit history tagged and destroyed for the next 10-years. (ii) Government buy the mortgage debt at a total of 40%~50% discount to adequately protect all Tax Payer\’s money, and to ensure lenders and bankers deserve ENOUGH PAIN to remember for rest of their lifes. 25% loss is really NOTHING. Stock Market investors frequently endure 50% drop in stock price in 1 day.Again, THESE ARE HOUSING SPECULATORS, NOOOOTTTT VICTIMS!!!

The vituperation against Professor Roubini was pretty childish. I hope that those who made those comments will reflect on these points:1. Frank-Dodd will NOT help speculators2. The size of the aid is much smaller than the aid to the financial system.3. The benefits go not just to homeowners but to the nation as a whole in the form of stable neighborhoods, a stronger economy, and a lower deficit. When Martin Feldstein and a fellow of the American Enterprise Institute agree with Alan Blinder and Larry Summers, it\’s probably policy that everyone can live with.

\"the experts who are supporting it are very broad and ranging from Democrats to Republicans, from folks to the left of the center and others to the right of the center or outright conservative.\"Good Professor – I would remind you that while expertise has its value, it is also the experts who substantially got us into this, as with Long term Capital Management in the late 90\’s by faulty valuation and economic models.While agreeing something needs to be done, by continuing to marginalize the moral hazard issue, you establish a rotten core in the economic system. A bailout without consequence is a band-aid approach to a more fundamental malaise.

Posted on the previous thread…IMO it’s important to not to lose sight of the fact that this process has been driven from inception to current draft legislation by the lender’s lobby and key industry representatives. They, not borrowers, lobbied Rep. Frank and Sen. Dodd, to ensure when enacted, the public policy solution (legislation) reflected THEIR best interests.This is a bit different from what’s portrayed in the media; Frank & Dodd are portrayed as the citizens’ “David” valiantly poised for battle against “Goliath” (lenders). My guess is, this script is already written, and both have agreed in principal to the final outcome, as well as each side’s strategy and rules of engagement.IMO, the “FHA Housing Stabilization and Homeowner Retention Act of 2008” is a ruse. Although it appears to humble lenders by requiring them to accept a 15% “haircut”, and to champion borrowers by reducing their mortgage principal by 10%, neither the “haircut” or reduction is much of sacrifice (particularly if the haircut is reclaimed via other means). Unfortunately, the principal reduction may be just enough to cause some borrowers to remain captives of their lives’ biggest mistake.It also has no chance of achieving “housing stabilization” and “homeowner retention”. Its undoing is its reliance on current market appraisals in an attempt to artificially establish price floors. IMO, the appraisal process has been completely discredited; there are simply too many unresolved issues requiring attention before it can be re-legitimatized. As such, the market will ignore them and find the bottom on its own.If it’s doomed to failure, what’s the point of going through the drill? IMHO, lenders hope to achieve two short-term goals; first, frame and control the issue, second, position negative equity as the primary cause of homeowner default. The government (as with all issues affecting governance) hopes to achieve relevance and legitimacy through this legislation (expect it to be amended as needed going forward).Other considerations; 1. Total size of US mortgage market (i.e. mortgages currently booked, not annual sales)?2. Of that total, defaults represent (i.e. @ $ and %)?3. How does that compare to what’s typically budgeted for (i.e. typical loan default loss)? 4. Based on current data (i.e. past 18-mos.), expressed as a percentage, what contributing factors result in default (i.e. negative equity, affordability, life experiences – divorce, illness etc.)?Written by TA on 2008-05-15 10:57:38

Who\’s interests does the Fed have in mind? Why the Banks of course, they are becoming the largest landlord of empty homes in the country. One thousand per day in California alone. The result of recklesss lending practices. Now the time has come to pass it along to the Taxpayer?Where was the concern for the \"homeowner\" when banks were making Billions in mtg and interest pmts?They Want all the gain w/out any pain.

@ NourielThis proposal is nothing more than a shortcut to disaster. By agreeing to this plan you are saying that today\’s rescue is more important than tomorrow\’s reality.If this plan is implemented then it would be a clear signal that there really is no consequences for stupidic lending practices. The precedent will be set saying that whenever we get into too much trouble the gov\’t will bail us out!The only way this would be acceptable to resonable people is to set the limit to those who put upwards of 10% real equity in at the beginning (a sign of serious intent and respectable financial management). Everyone else was simply taking advantage of the carnival atmosphere!

LOLOL, US stocks are once again out of control…Dow up 100 point and for what???

Can anybody tell me how this will help the person who wants to buy his/her 1st home? Will this legislation result in the resetting of home values lower nation wide?

Hi I am A Banker and I have a Lending addiction Problem..It all started back in 1999..a start.

What would prevent anybody from buying a home today and then defaulting on the payments just to get the extra 15% haircut. I would do it!!

\"Can anybody tell me how this will help the person who wants to buy his/her 1st home? Will this legislation result in the resetting of home values lower nation wide?\"@Professor, can you answer this one for your students please who are supposed to buy a home ? Maybe they will legislate a 25% increase in starting salaries for ALL college students. Whatever happens – get the government involved as much as you can.

i am sick and f ing tired of this nonsense – ok devalue the dollar by 40% over 7-8 years and ta da it is magic take the prices of equities and houses up ! Wow – that is great. i love magic shows and the art of illusion – fascinating. Wait though, who the f can afford anything now ? guess they did not consider this before… Hmmm. That is ok. Just keep legislating more bull s _ _ _ and handling monetary policy like a liquidity crack dealer !

I\’m still not keen on this intervention. The UK had an extremely harsh housing crash in 1991 that led to widespread negative equity and repossessions. The recovery that followed was stronger because intervention to prevent the correction was limited, with the banks bearing most of the burden of renegotiating mortgages independent of the government.Given the horrid public policies throughout the Bush administration and the Greenspan/Bernanke era, I\’m not keen for a further intervention with uncertain consequences now. I\’d rather let a little pain sink through to both the financial institutions and the homeowners so that everyone is reminded that there are real risks involved in lending and borrowing and that the government isn\’t there to wave a magic wand for every thing bad that happens.For those that missed it on the home page, my first blog post is up today: Looting the Vaults of the Central Banks. Come on over and have a look.

Professor,You have been more correct than anyone else. However, please explain what is in it for the people who have been responsible savers. Ones like me who have sat on the sidelines saving for a downpayment and watching those savings\’ value evaporate. Why should we now pay for the ills committed by other people who were by and large speculators. Anyone who bought a house they could not afford were betting on price increases. anyone who took out a HELOC is a speculator. all these people apart from the ones who bought multiple houses were betting on price appreciation. What of us 30% who don\’t own? We suffer now. Thanks.

Professor,The key detail about \"what haircut will be applied\" is missing under this plan. If it is done case by case, there is massive opportunity for fraud by over assessing by the banks just like they did before. If there is a large enough haircut applied, and the homeowner gives up a \"large share of any upside that may be realized\" then I will buy the argument that these entities (lenders and borrowers) are not speculators.

I have learned a great deal from recent happenings. My Father and Mother have been wrong all along-I should not be an upstanding, charitable, hard working, self-sufficient American patriot. Those characteristics do not lead to wealth and power. I need to be a lazy, decietful,irresponsible criminal to get any benefits from being a US citizen. What has happened to the US is criminal and as long as the criminals are protectiong the criminals, lawlessness will rule the land. Now if you will excuse me, I am going to quit my job so I can get a rebate check, then I am going home to default on my mortgage so I cna get a nice haircut and become wealthier for doing nothing…

4:41[BZH] Beazer Homes Q2 continuing ops per-share loss $5.93 vs $1.514:41[BZH] Beazer Homes Q2 revenue $405.4 mln vs $823.6 mln4:40[BZH] Beazer Homes Q1 rev $503.1 mln vs $802.5 mln4:39[BZH] Beazer Homes Q1 per-share loss $3.59 vs $2.094:38[BZH] Beazer Homes files fiscal Q1, Q2 financial statements

Professor,I have several comments that I would love to be answered in one of your articles.I understand what you mean. This proposal in theory sounds great, but how does it work in practice?You told about $1 trillion. Isn\’t that a drop in the bucket compared to the actual amount of mortgages that are underwater? It seems a lot of people would be left out. How would we keep these people from walking away, or from not paying their mortgages in order to get bailed out as well?You said speculators and 2nd home buyers would be left out. Aren\’t those people the most likely to walk away? I don\’t see how banks will be kept from being technically insolvent if they\’re avoided.You told about a 25 % haircut. Would this keep 25 to 1 leveraged financial institutions from going bankrupt? Furthermore, you said there would be no cost for the government, but in distressed areas prices are already down much more than that.Would this keep house values from going down anyway? Inventories have already gotten too big, and all the exotic loans that fueled the housing bubble are gone (whatever the government does). Housing prices are still very high compared to historical standards, especially when you take into account flat wages, rising food/oil prices, a recession, and relatively high borrowing rates. Is the proposal even possible anyway, given the sinking dollar and huge deficits? Wouldn\’t this backfire and trigger a rise in long term rates (provided the amount is high enough to bail out most homeowners)?I hope I will see some of these issues addressed.Thank you very much for this blog and your answer regarding our commentsXavier

\"Very few reflected on the substance of this proposal and its strong economic logic that would benefit borrowers, lenders and even the government…\"I have reflected and as you point out in this quote this bailout helps all the irresponsible actors who created this mess.

Nouriel Roubini – Very few reflected on the substance of this proposal and its strong economic logic that would benefit borrowers, lenders and even the government as the fiscal cost of no action (a systemic banking crisis that would trigger a costly fiscal bailout of banks given deposit insurance) is much higher than the potential modest fiscal cost of this proposal.Ask yourself, why is NR talking like this? What end game does he see that would justify such a dramatic proposal. Y\’all are debating if there is or is not inflation while professor sees a much broader and bleaker picture. I think I see it. You know, it\’s That-What-Cannot-Be-Named stuff, it\’s what Dmitry Orlov witnessed. It\’s what the professor cannot come out and directly say…I see three general reactions to NR\’s proposal: a)horror at social injustice, b)horror at the plan\’s mechanistic complexity with its high probability of failure especially given the current climate de-regulation and self-interest, and finally c)acceptance of the plan.I think NR\’s response to your reactions is a)Is it not even a greater injustice to allow society to collapse? b)Maybe the system has been corrupted and the plan will not work, but what\’s the alternative? I have my ears open and I\’m in receive-mode! Do we sit around and whine or take our best shot at the problem? and c)We only have about six months, maybe less, before the real 10-13 million default deal hits, let\’s do it.

AllAs I see it there is consensus that speculation is not driving oil and food higher. This is nonsense. The market has been cornered (MAN, IRAN, Marc Rich). Re-regulate and see what happens. While Tom Friedman is right that PEAK oil is probably here, it is not HERE NOW. Get rid of the Enron de-regulation. PROSECUTE vigorously and stop what will end in starvation for millions. MAKE physical delivery a requirement.Then for mortgages.. George Will is right. Any banker going to the window can no longer make more than 175,000. Period. Stupid Bankers, Borrowers, and fraudsters should pay. Not the poor retirees and working poor who are suffering needless inflation to bail out the fat cats.America needs to get back to productive roots. I see some merit in forcing bankers to take a haircut and stop foreclosure auction prices. Our statistics are absolute nonsense. Unemployment is going up, pay is flat or going down for most and inflation for food and fuel is out of control. I think Nouriel, FD is kind of right, but the haircut has to reflect local markets. Thus NYS is 15pc, but FL, NV, CA is 30-40pc.Never could I imagine us having a repeat of the 70s re: OIL and Mortgages from the 80s. We did it! This is what partisan politics, celebrity worship and gated communities gets us. We have no plan. Our competitors do. Our corporate leaders manage to the short term. Their competitors don\’t always do the same.ABSOLUTES:1. Taxes going up.2. Our kids will be poorer.3. We\’ve become more corrupt.4. Inflation will not payback this debt.5. There is now way in !@#!! we\’ve hit bottom.Short/Long, market timing, doesn\’t much matter. We\’ve squandered a wonderful inheritance and our future will look like Britain\’s. Everything/everyone is for sale.This is actually a 30 year trend away from productive ventures which accelerated under both Bill and George (16 years). Look for college educated clerks at a hotel/store near you. That\’s the future.

Professor, why does the burden of bad debt have to become a taxpayer burden?Why not make the banks and shadow banks responsible for this debt? Sure we all understand that as over leveraged as they are they couldn’t take on the debt currently. However, over time they could and should be responsible for this debt. This could all be done with a simple accounting game like the current level 3 accounting. Let the banks write down a set portion and hold it off balance sheet for a set period of time. Thus, the taxpayers don’t have to bail out bad policy set up by the government and implemented by these banks and shadow banks. The banks can then discount the homes they have for sale at prices that are merited for a sale. The market once again seeks a level of balance between supply and demand. This is simplistically stated but puts the debt where it belongs. It allows housing to seek a level that makes sense for ownership. Those homeowners that got caught in the trap lose just like they lost in the stock market bubble. But it doesn’t make those taxpayers who saw what was coming pay for the fraud, abuse and bad deeds of those who did.BTW, have you even looked at trying to implement the Dodd-Frank bill? It’s a none event even if passed.

Professor, I really understand why you agree with this FD proposal. If home prices drop more than 25% nationwide, it won’t only penalize reckless borrowers, but also all responsible borrowers through direct effect (their house will be underwater) or indirectly (causing widespread economic recession and unemployment for years to come). Everybody will be worse off. Deciding on whether the proposal makes sense depends on whose perspective we are addressing of course, but I think that everybody agrees that we should decide that from the perspective of taxpayer, responsible taxpayers, or at least those who have nothing to do with the problem (new people looking for houses, young people, future generations …) So the proposal would have merit only if its benefits exceed its costs.First, as pointed out by many bloggers, how would we know by how much home prices should fall before reaching equilibrium? How to make sure that the bill would help only responsible borrowers and penalize irresponsible ones? How do we make sure not other clauses will be included that will help lenders? …But let put aside all those questions and assume that the bill’s underlying assumptions are correct and that the bill will be properly implemented. In that case, the bill will help stabilize home prices in some neighborhoods at the 25% discount since it will provide these borrowers with “cheaper” mortgages and won’t drive them to default. If these ‘responsible’ borrowers were not speculating and did not take any seconds or HELOCS why do they need to mark-to-market their houses if they have no intention to leave except resets or renegotiating the mortgage payments, just put the house in their L3 balance sheet? If they borrowed more than 100% of the value of their houses at the peak, then how to make sure that the 25% haircut is enough to ensure that these responsible borrowers able to still finance their mortgages? If this bill really helps responsible homeowners, how could it stabilize the whole mortgage market since, I believe, most of it is “irresponsible, reckless & speculative” then should not be included in the bill. At best, the bill will have a decelerating effect on home prices.@ ptmI believe it is the case. I also believe that it does not matter much if the proposal passed or not.

John McCull wonders when Nouriel will say this has not been a sucker\’s rally. On January 1st, 2007, which is about when I seem to recall Nouriel warning about a sucker\’s rally, the S&P was at 1418. Today it closed at 1423. Since official inflation has run about 5% since then, and the dollar is down by something like 15%, who\’s the sucker, John? People who listened to the caution and sold at opportune times? Or people who hung in and watched the value of their holdings fall by 20%?

I fail to see how the proposal puts a floor on house prices. While it may establish a temporary reprieve, what\’s to keep prices from continuing their fall after a brief thaw?Eventually prices will HAVE to fall to levels justified by economic fundamentals like the costs of ownership vs. rent and a median price that it affordable to the median income in a given area. The more we delay it, the worse the eventual outcome will be.Again, the proposal can at best achieve a temporary \"floor\" in prices and foreclosures, at the expense of another huge hit to the federal budget and the US dollar. Is it worth it?I\’m sick of hearing about the \"horrible\" consequences if we fail to enact a bail out. It is the same story again and again and again. Screw the prudent to reward fools and speculators. Scare them into compliance by speaking of \"horrible\" consequences.I\’m a productive member of society. I pay my taxes. I save. I make rational economic decisions. And I\’m tired of hearing the same story over and over. I believe the \"horrible\" consequences everyone is blathering about are, in fact, quite necessary. Its time to flush the toilet on this chapter of our economic history.Having said that, I don\’t doubt that a bailout is coming. It is forcing me to seriously revisit my good citizenry. Maybe I\’ll quit working, start selling dope, get public assistance. There are so many ways to game the system. If this kind of behavior is going to be rewarded over and over again, its time I jumped on the bandwagon.All this time that I\’ve played by the rules, avoided undue risk, and saved for a rainy day I thought I was being prudent and smart. Now I see that I\’m the one who has been the fool.

Mr. Roubini,If this plan is implemented, do you see any reason why a person able to make his mortgage payment would keep paying his full mortgage balance while his neighbors mortgage has been adjusted down. We will go back to the same basic logic that you had mentionned before(people who have a negative equity walk away) but in this case those who don\’t get equal mortgage writedowns for similar houses will walk away.May be you can convince me otherwise.

Kefauver Committee~\’The structure of organized crime today is far different than what it was many years ago. It\’s power for evil is infinitely greater\’.

\’The mafia image is the common stereotype…but today a variety of groups is engaged in organized criminal activities\’.-National Advisory Committee

see what BOE statements are..and compared to RECESSION PROOF USwhat a joke..http://www.dailymail.co.uk/pages/live/articles/news/news.html?in_article_id=566329&in_page_id=1770&ct=5There may be no cuts in interest rates until 2010, the Bank of England has indicated. However, inflation is predicted to rise far above previous forecasts and stay well above the Government\’s target of two per cent for up to two years. Mervyn King, the Bank governor, said price increases would cause \"a squeeze on real take-home pay, which will slow consumer spending and output growth, perhaps sharply\". Saying that \"the nice decade is behind us\", he added that it was \"quite possible we may get the odd quarter or two of negative growth\". Presenting the UK quarterly forecasts, the Bank said inflation could reach 3.7 per cent by the end of the year. According to the Financial Times, inflation projections will not return to the two per cent target until early 2010, suggesting that the Bank has no room for rate cuts until then – even though the UK economy will slow sharply. Families face a five-pronged assault on their finances, Mr King said in his bleakest assessment yet of the state of the country. And the governor predicted: • Gas, electricity and food bills will get even more expensive this year and will push inflation towards 4 per cent, possibly even higher; • Economic growth is likely to slump towards 1 per cent by the end of the year, and there is now a risk of recession; • The housing market will continue to fall after worsening \’markedly\’, but it is impossible to say how far values will tumble; • Pay rises may be curbed, further damaging employees\’ quality of life; • And the banking crisis could continue to run well into 2009, keeping mortgage costs painfully high.

One question, if lenders according to the FB bill have to make a 10% haircut, why not just enforce mark-to-market accounting rules first? It requires no additional costs and it is not voluntary.

My reply that I will send tomorrowDear Representative Frank,Thank you for your prompt reply to my request that our representatives consider legislation that would require the federal government to adopt GAAP principles. I realize that my government is not a public company and that there are many differences between public companies and the government, and therefore many of the GAAP requirements would not be appropriate. However, I do believe that it is prudent that our GAO report on the financial performance of our federal government in a manner that is transparent, easy to navigate, comparable, and reproducible.Financial statements paint a picture of the overall health of an organization – public, private, not for profit, household budget, government, etc. If you look at several years of statements side by side, you can see trends which will point out opportunities to make small corrections along the way and (hopefully) avoid any serious shortfalls or exposures in the future. Is it unreasonable to ask our government to present this information in a more meaningful way? I am confident that the information exists, but I have not found it to be readily available, consistent, or complete.I agree with your statement that “Tax payers have a real interest in knowing exactly where we are, but it is different from that of shareholders in terms of their financial exposure. “ This statement is dead accurate, as my financial exposure to our federal government outstrips any financial exposure I have to public companies. Whereas I am able to diversify my investments to reduce financial risk, I am not able to diversify my income tax liabilities. My diversified investments in public companies provide income, which at the margin, is taxed at more than 30% and sent to the federal government. This excludes taxes paid through other means such as the gas tax, airport security tax, phone tax, etc. My family’s federal taxes are BY FAR the largest line item expense in our budget. More than the costs of 2 kids in day care, more than the interest we paid on our mortgage, and more than what we saved in our 401(k) accounts.I think it is vitally important to know the financial situation of our federal government so we the people can make better decisions for our collective future. The best guess I can make now is qualitative: i.e. my income taxes will have to be higher to pay for the looming obligations related to social security, Medicare, infrastructure investment, and the federal debt. If I have good financial statements for the federal government, I would be able to project qualitatively how much higher: i.e. tax revenues must increase by 20% per year to meet the future obligations; therefore, it is likely that my taxes will increase by 20% per year. I could make small changes now that would avoid big problems later.Thank you for your time.

Why is democracy so craven and weak? Enough collective foolish people both speculating and satisfying a basic need in purchasing a home get behind on payments. Or seriously become upside-down, underwater–and suddenly the system that profited immensely in prior times with minimal defaults gets deluged. Their greed of former times is overwhelmed, markets crash with the glut, values drop catastrophically, ability to collect is impaired. If the market mechanisms were equipped to handle the volume of defaults without the market tanking, TPTB would be offering no amnesty, no taxpayers stop-gap, no pressure for political solutions. They would handily foreclose properties without remorse, resell them, pocket the profits, and figuratively give the defaulter a diminutive hand sign. Because the have erred so expansively, and because the error has destroyed the traditional means of extracting value from the defaulter, they are stooping to feel-good-I\’m-so-sorry empathetic manoevres to backstop their losses.This is an arrogant excuse to simply soak the less wealthy and less power-accessible masses to remedy their monumental mistakes. Sorry Nouriel, with the great respect we hold for you notwithstanding, you must pierce with an ambivalent eye the crux of this matter. Justice and mercy must be applied in this case, and learned from. Justice requires the crushing honesty of market dynamics to remedy foolhardy overreaching. The screams for mercy are generated by the creditors who realize now their lending errors. Banks, bankers, international money men have the coldest of cold, cold hearts. They care not one iota for the happiness or content of their clients. They are reaching down to make concessions only because they are in a Laocoön-like embrace with their debtors.Explosive as it may become, punishing as it may become, debtor and creditor must follow the time-held forms of resolving their issue. Losses must be absorbed no matter how injurious; deadbeats must be marked and avoided for future transactions. No head-master, nor quick-study like the crushing consequence of folly to discipline finance for its future purpose. Enabling the misjudgements of men to be passed to their lessors or peers will dilute the purgative effects which will ensure our future prosperity. WE have too long diluted our greatness to cater to the wretched ignominy of others.

From http://www.ft.com May 15, 2008Enjoy \"The European Central Bank on Thursday voiced its “high concern” at growing evidence that banks are exploiting its efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisaged.Yves Mersch, a governing council member, said the ECB was now “looking very hard at whether there is not a specific deterioration of collateral” which the central bank is accepting in return for funds.He was speaking amid signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank.\"

@ JPNice reply.I also suggest that you end your letter with this:\"In Government we trust!\"I believe your Congress Person failed his history class. (S)he cynically believes in the Government more than a bishop in his Church.\"We do sell bonds, but the state of the federal budget, even when it is at its worst, has never caused any problems for the bonds. The bonds are backed by the full faith and credit of the United States Government, which is not at all at risk.\"Faith. Credit. Risk. Vatican also sells bonds

@ Guest\"..banks are exploiting [ECB] efforts to unblock the frozen funding markets by using its liquidity scheme to offload more risky assets than it envisages…signs of some banks creating low-rated assets specifically so they can be traded for treasuries at the European Central Bank.\"That is what we call in financial jargon \"arbitrage opportunity\" and in plain language \"scam\". This is by the way why unenforced regulations or regulations against free-market do not work. They provide \’opportunities\’ to those immoral, sorry, amoral moral persons (also refered to as corporations) to take advantage of these opportunities. Why they do that? It\’s stronger than them. It is also the reason that explains why mosquitos are attracted by fire to their peril.This is also why shaddow financial system appeared. Why this mess that we have. Go and tell that the Fed or to Mr. Frank. The bill provide quite good arbitrage opportunities.

Professor Roubini, May I make an additional point: Sometimes when your posted analyses run into resistance, is it not constructive to measure that resistance? In this case, there’s enough resistance to the Frank-Dodd proposal to suggest that not only do the handful of bloggers here think that the bailout is un-American, but so do millions of other Americans. If this be the case, should not our economists and law makers reflect upon the fact that to degrade and insult millions of honest, taxpaying Americans is not good policy for encouraging volunteer government cooperation? It is suggested that we did not give the proposal careful scrutiny. But have you and your colleagues carefully looked at the reasons why we’re upset? They are the same reasons millions of other Americans will be upset if the plan is implemented.We have been told by economists such as Martin Wolf and networks such as ABC to “Get used to it” for far too many times, whether it be for $4.00 gas, open borders, bailing out megabanks by sacrificing our American standard of living, trashing the value of the U.S dollar and its status as the world’s reserve currency, thievery of our savings accounts via Street-accommodating Fed rates, loss of our jobs and manufacturing base by harmful monopoly mergers and globalization, lowering of our wages through price inflation while CEO incomes spiral to a median of $8.8 million, fakery of government statistics to deprive seniors of the value of their Social Security trust income, deterioration of our country’s infrastructure to support a neocon-planned war of land and resource aggression, ad nauseam. Isn’t it time that we be allowed to “Just Say No” to more transfer of Joe Six Pak’s hard earned money and make an honest guy happy?

AfA asks, \"The VIX options index fell to the lowest level of 16.30 since S&P last october. Today, the S&P reached a 4-months high.Is this a bullish or bearish sign? The party will go on, or at is really a peak?\"This is an election year, AfA. It would be surprising if there were a serious crash. I think that we will see the market decline as it sinks in that there\’s a second wave of mortgage defaults from the commercial mortgages, that the consumer economy is in for a long period of weakness, and that inflation is not contained. But there\’s plenty of time for a bear market rally– it could even take it to historic highs… assuming one ignores the declines caused by inflation and currency.

@ Guests: I own two US dollar assets (ignoring potential inheritance); a couple hundred bucks worth of government bonds (suitable for framing or toilet use) and a few thousand shares of Citibank (acquired a few years ago). I am especially happy with my Citi shares since it reminds me why I hated working there so much.I left twenty years ago and always thought about returning until about four years ago. Now I think about burning my passport. A very, very hard decision to make.

The root of the evil:> excessive use of Creditcards – overextension > refinancing with mortgage – overextansion > back to Creditcards to pay the debts – desperate overextansion> whats next?Maybe Frank-Dodd have an idea.p.s. The Dollar is not a paper money – it is plastic.(is made out of oil)

NR wrote: \"Very few reflected on the substance of this proposal and its strong economic logic that would benefit borrowers, lenders and even the government as the fiscal cost of no action (a systemic banking crisis that would trigger a costly fiscal bailout of banks given deposit insurance) is much higher than the potential modest fiscal cost of this proposal.\"Thanks for your support Prof. We have to keep our collective eye on the ball. That is preventing Prime borrowers from walking away. All the shorts, gold-bugs on this board have taken it on the chin with your latest post. The savers and potential home buyers can continue to sit on their no-risk-taker fence and watch their potential ebb away as they continue to subsidize the productive risk takers.Most people don\’t understand the American consumer even now. Their is no tomorrow for them after the Cold War and 9/11 happened. Therefore, there is no need to save. Sadly, as the people in Jaipur just found out, forget out the long-term, you can be dead in the very short-term. Very rational behavior to not save.For a recap, the story so far:1. Investment banks match the uncompromising needs of long-term borrowers and short-term investors. Mortgages borrowers are long-term and investors wanted only \’liquid and safe\’ AAA products. 2. The lynch pin of the last binge was that Moody\’s agreed to slap the coveted AAA label on voodoo products backed by sub-prime mortgages given to borrowers with a repeated history of delinquency and default. 3. Seeing the AAA label, investors such as pension funds, insurance companies and other risk-averse but yield greedy savers drank the kool-aid resulting in severe and bloody constipation followed by debilitating and bloody vomitting and diarrhoea.4. Investment banks haemorrhaged on the unsold kool-aid and killed off further supply of shadow credit.5. With demand for AAA goo backed by mortgages gone, home prices fell. Black Swan arrived.6. With current and future long-term borrowers at risk on near-death on investment banks, the Fed swapped the kool-aid with treasury balm.7. Now sophisticated but underwater prime mortgage holders will walk away rationally. That will kill the quality of demand on mortgages and credit. With supply and demand gone, Fed will be pushing on a string. FD Bill will try to stop them from walking away. Until then …Print First Ask Questions Later.

Rather than calling for more transparency in Central Bank\’s dealings, or in the fiscal policies of the Federal Reserve, we should instead, advocate a clear, unambivalent, widely disseminated posting of who had lunch with whom. If I knew who Prof. Roubini dined with prior to advocating a national mortgage bailout, I might better understand how this prescient, devastatingly honest, iconoclastic, brilliant critic of our current economic environment, could come to such a crack-brained point of view. As if that isn\’t bad enough, he goes on to defend his argument using ad populorum and ad authoritarium argumental fallacies. Is Dr. Roubini in fact, a latter day Rumpelstiltskin, coming to collect our first born? Are we who were drawn in to his flawless predictions, unwitting participants in a Faustian bargain that Dr. Roubini is now coming to collect on? The answers to these questions might be found if we knew who he ate with and what was on the menu.

ANyone with a mortgage now should stop paying it immediately, you won\’t qualify for principal reduction unless you are in arrears.

\"Just Say No\"are you kidding? what message NR has been sending out? he supports more bailout and more devalue of dollar (via rate cut). now, we don\’t see recession. market doesn\’t see recession. NR is wrong. if you believe anything NR said, you deserve to lose money forever.

bear\’s argument there is no inflation because there is no wage increase? why do you need wage increase, when you get free check from uncle same\’s rebate program for people, for farmer, and etc? soon there rebate program and bailout will be permanent like those FED\’s permanent facility. you delusional deflationists still in denial? accept it, there is not gonna be recession when government is putting the floor. soon housing will be re-inflated. let dollar die, but let other asset rise -> stock market, real estate, and commodity market. still believe there is no inflation, i can\’t help you.

I am getting the feeling that emotions are forcing more reactions here than actual thought. There are many of you who sound very angry that you may lose out on something simply because you have been prudent. While I understand and agree with the initial reactions, as I too have been prudent and managed to save and keep up on my debts, I am inclined to believe that the best way out of our current mess is to at least try and prevent a worst-case scenario. Think about it. If we let the entire system go down, who will really pay? The wealthy? No. The well-connected and powerful (read: Bank exec\’s who OK\’d this crap)? No. Who will suffer? We will. Our homes will be worth much less; our jobs may well be gone with a crashing economy; our savings may all be lost in bank runs. Does it not benefit the entire community if the local homes are occupied and kept up instead of looking like hell? Do cities and states not benefit if they are collecting taxes on properties instead of not collecting anything on abandoned homes? This is a societal problem brought on by those who should be held accountable, but in the interest of the greater good, is it not worth fixing? I, for one, would rather see competent people running the show who can help to slow and even perhaps stop that which we all fear most. This is not an issue that affects just some of us – we are all on board the ship folks and it\’s going down. We can all work together and save as many as possible, or we can all be victims. There will be some who will benefit and some who will lose some – that is life; not always fair, but there it is. Should that idea stop us from righting the ship? I would argue that it should not. There will be more plans like FD to come along. Rejecting them out of hand for defensive and reactionary reasons will not fix anything. We may not be able to make this situation ideal – but can and should do the best we can with what we\’ve got.

Why are the headlines giddy about the housing starts number??? It is apartment building that shot up, not single family homes!!! This may be some good news for construction employment but that is it!

Guest said:Why are the headlines giddy about the housing starts number??? It is apartment building that shot up, not single family homes!!!They are adding apples and oranges to make a messy fruit salad report. In 2006 and 2007 there was one apartment built for every 5-6 homes. Now it is one apt. for every 2 homes. Not only has the number of starts collapsed but the economic impact of each unit started is much smaller.

BULLETIN U.S. CONSUMER SENTIMENT AT LOWEST LEVEL SINCE 1980

waiting for gold and oil to bottom out in next 1, 2, or few weeks. and then commodity market must rally to sun again!!!

i see a dark sail on the horizon…set under a black cloud that hides the sun…so bring me my Broadsword and a clear understanding…bring me my cross of gold as a Talisman…~Anderson

Why have any friggin rules in the US anymore??10:48 Fannie Mae eases down payment rules

@ Guest: BULLETIN U.S. CONSUMER SENTIMENT AT LOWEST LEVEL SINCE 1980What! And Bernanke working clandestinely day and night in his little helicopter to rescue them all? Flying overtime, bombarding the economy with dollars, bailing out the finest of our bankers and CEOs, re-arming the stock market with the working cad’s 401(k)s, engaging his famous PPT, faking classified statistical information to foil the enemy, enlisting Congressional prostitutes in undercover sting operations, embedding the Media to demonize the opposition, assaulting the chicken savers and putting their money to patriotic use… Has the fickle mass of consumer resources no gratitude?

Dear Professor,I\’m surprised, and somewhat disappointed, that you agree with the same \"experts\" who now say the free market has failed. It hasn\’t (yet), but it might if policymakers intervene: if the market is allowed to adjust, it will find its natural equilibrium, and thus the free market paradigm will have succeeded in erradicating the gross excess, bad practices and misallocated capital. This will punish conflicted ratings agencies, shoddy lenders and imprudent speculators, which is EXACTLY how the free market should work. Regulators let the market run up, but now on the way down they\’re saying free-market economics no longer work. I didn\’t realize a permanent upward trajectory was a pre-requisite for a free market system. I WANT to buy a home, and so will thousands of others, as long as it\’s affordable and in line with salaries and rents. If we really want to help the homeOWNERS who got duped into buying a home with a bad mortgage, why don\’t we imply don\’t tarnish their credit scores if they default? They\’ll become renters, just like me and other savers prudent enough not to get into this mess, and when prices adjust, they\’ll be in position to buy again. (Of course, this wouldn\’t apply to SPECULATORS.)No one is disputing that, in the short term, the bailout program would result in less pain than letting the market run its course. But, in the long term, you have:1) Marginalized new home buyers2) Misallocation of resources (more capital in homes than justified by fundamentals)3) Moral hazardThese, I\’m sure, are all logical consequences of your basic Economics 101 teachings. This is no different than having a coke addict who is in a recovery facility, and giving him a little more drug just to spare him the pain of going into full withdrawal. Only removing him from the drugs will allow him to start living a healthy life.

Question open for all blog participants: Considering an idealized, utopian community wherein greed and selfishness do not exist and men and women engage in productive work, seeking not the benifit of the individual, but rather the benefit and welfare of the collective community, under these idealized conditions, is it possible that wealth can be distributed equally and prosperity to be collectively attained? If yes, then please explain the logic in economic terms, e.g., Construct a model of any sophistication to to scrutinize this problem. If no, then please provide same type of model thinking. Thanks to all who would take their time to consider this question.

The dow rallied 50 points on this news:12:44 The Ratings Game: Goldman sees oil at $141 as early as July

http://money.cnn.com/2008/05/16/news/economy/oil_speculator/index.htm?postversion=2008051604 – As oil nears $130 a barrel, some say $10 to $70 of that price is due to new speculators flowing into commodities from big-money funds like university endowments, pensions…Wall street gamesmanship has never stopped, it just keeps jumping to new targets. Money is leaving the bond and stock market (remember the Legg Mason $24 billion flight-to-safety reported in the 1st quarter) and jumping into commodities. Central banks are leaving oil alone, but actively suppressing gold (which makes it the best buy of decade). As oil prices feed inflation will that money jump and pop the oil bubble? If so, where can it jump next? Into gold?

Roubini and those who use excuse of \"in-action is worse than bail-out\" to justify this housing bail-out is not thinking straight Why? As I suggest to Roubini many times, he really need some discipline in Engineering, Science, and Complex Math to improve his intelligence. 1) Bubble always come from projecting current growth rate to FOREVER future.2) Most economist are Stupid, and few are intelligent, and 99% suffer from the same syndrome — Project future assumptions based on current reality.3) You are making a HUGE FALSE ASSUMPTION and VERY LIKELY A LIE that In-Action will results in national collapse. Housing does not make USA. USA made its empire today based on Engineering, Science, and Innovation. NOT HOUSING AND NOT FINANCE. Take Japan as a fact and learned from it — 1) Most Japaneese citizens are VERY HAPPY with Deflation with their buying power increase.2) Japaneese is still enjoying the world highest income and savings3) Japan is still the one of the most innovative coutry in the world — think about those advanced auto, and enginnering products, despite close to 2 decades of bad economy. 4) Japan mistake in the post-bubble of 1990 was that, it should have let all those banks bankrupt and houses depreciated much faster without intervention! Funny Roubini forget what he said about this point a few months ago.Maybe Roubini is hijacked by Bernanke spirit from above?! PUMP, FREE USD MONEY for everyone!!

@ Guest(s) who is (are) bear-o-phobe:“VIX is going to 10, and bottoming there forever as long as you bear still crying for rate cut and bailout. stupid bear and short.”“are you kidding? what message NR has been sending out? he supports more bailout and more devalue of dollar (via rate cut). now, we don\’t see recession. market doesn\’t see recession. NR is wrong. if you believe anything NR said, you deserve to lose money forever.”“VIX is going to 10 and global market is in process of taking out resistance. just look at OEX, the most reliable lead indicator, it is in process of taking out resistance. wake up people, NR is wrong. has been wrong for past several years. believe him, than don\’t complaint when you lose money. don\’t be pathetic loser”“bear\’s argument there is no inflation because there is no wage increase? why do you need wage increase, when you get free check from uncle same\’s rebate program for people, for farmer, and etc? soon there rebate program and bailout will be permanent like those FED\’s permanent facility. you delusional deflationists still in denial? accept it, there is not gonna be recession when government is putting the floor. soon housing will be re-inflated. let dollar die, but let other asset rise -> stock market, real estate, and commodity market. still believe there is no inflation, i can\’t help you.”I don’t remember that anyone here was advocating for more rate cuts or bailouts. This board is one of the fierce opponents to irresponsible monetary and public policies. Professor clearly do not support bailouts, he was yielding so to warn the government and the Fed so that we do not end up in this mess. Now that we are in, he is scratching his head to find solutions to let us go out of this mess. He might be wrong about the FD bill. But that is his opinion, and I respect it and criticized it. Plus, until now, I haven’t see a real reason why things wouldn’t be worse without the bill.For one, I know that I am pathetic but not yet loser (in financial meaning). But could you please tell me why I am such, instead of throwing your fancy superlatives. Do you know at least what is the difference between bear and … You are criticizing someone because (s)he says a stock will come down? Is that your definition of pathetic loser? Pick any stock of your choice and look if it never came down. You just hate that someone says something will go down? Are you a CEO or something? Or are you one of those who call themselves “patriotic” and consider shorting an American stock “unpatriotic”? You should take example on your leaders who are dead short on US.There is no recession? Don’t believe me, and don’t believe Professor. Do you believe in the Fed and in your administration officials? Because they are all crying recession and put it as a justification of their actions (bailouts and rate cuts that everybody here is against). Without these interventions you would know what a recession really means. Are you really bullish in an economic system where more than half of the Fed’s balance sheet is swapped against toxic waste and where the government want and did nationalize the banking system and the housing. I am talking long-term not short term. In short term I am buying stocks (including AAPL that I sold only yesterday with 40% profit in 3 months). There is no recession because “the government is putting the floor”? Who is delusional? Your words “let dollar die, but let other asset rise”. Do you know how the multiplication magic of 0 works? Your house is worth $1B and $1=0 (pick any currency). Take your calculator and multiply 1 billion by 0, the result is what your house will be worth. Take a $1M credit against your house equity to by few yuns worth of bicycle, few euros worth of gas, or few pesos of wheat. Congratulations, you are out of recession!I do not know who “deflationists” are or what that term means. But I, agreeing with many on this board, believe that deflation is an ultimate outcome. I never said, and nobody here said, that there is no inflation, that everybody here believes will accelerate. Worse, I never heard someone here putting the argument of “no wage increase” to plead against inflation, and I do not even believe that falling home prices are deflationary per se. Saying deflation will be an outcome does not exclude inflation as reality. Inflation is here and now, deflation would come 1, 5, 10 years or never whenever the system collapse. Take it this way, it is just throwing a ball in the air. The higher you throwing it (inflation) the harder it falls (deflation)I think you are mistaking this board for another one, because your allegations come from thing air just like the money created by the Fed to keep this system afloat. Please if you have any arguments against some specific claim, put it forward with justification. Saying “delusional pathetic loser” may be true but does not make you right. For example, the VIX and OEX are good examples but at the same time, VIX is at it’s lowest since October, and you remember what happened in November? I am not saying it’s a peak now, I am just saying it’s not a sufficient argument.

\"Gold prices and the Market Vectors Gold Miners ETF (AMEX: GDX) are higher this session in sympathy with the surge in energy prices\"gold bottom is in. now it is time for commodity market rally to begin. oil is going higher!!

So much for risk management…Under the new policy, borrowers approved by Fannie Mae\’s automated underwriting program will be able to borrow up to 97% of the value of their homes, the company said.

Hey Sean, How do you know what percentage of the \"mortgage mess\" is caused by individual house-flipping \"speculators\", as opposed to the more conventional home-buyers who were told over and over again by their brokers that they could \"always refinance\" and that the \"time to buy is now\" because prices were going to \"continue to rise\" — the refrain heard CONSTANTLY on the way up. Remember most homebuyers are not market-savvy in any way, and entirely susceptible to exhortations and encouragement by \"experts\" and \"brokers\" – and President Bush\’s \"American Dream Downpayment Act\" which included specification for zero-down loans (go look it up, it\’s true).The notion that this entire situation was caused by speculating house-flippers is somewhat ridiculous, is it not? The speculation of note occurred when these home loans were used as collateral by the REAL speculators operating at the institutional level, was it not?So long as readers can\’t distinguish between the effects of red herring in this ocean dominated by institutional whales, emotional (or even self-serving) appeals can replace rational observation. Were these house-flipping speculators also responsible for regulating the lenders (should we now conveniently forget the \"Silence of The Regulators\" during the boom? But then they weren\’t silent, were they, they were encouraging buyers!). Perhaps we could trot the \"speculators\" around the town square with tar and feathers, leaving a clean getaway for the real perps, the Big Playas, who yaknow….RUN THE SHOW, and are running it now. PS, Webmaster, the posts here could be in the opposite order, so newest posts appear at the top, not bottom. Something to consider, thanks.

In his new book, \"The Great Derangement: A Terrifying True Story of War, Politics, and Religion at the Twilight of the American Empire,\" Taibbi embarks on a journey through contemporary America, a place that he believes is on the verge of a psychological collapse. Reporting for Rolling Stone, Taibbi goes undercover as a born-again Christian to investigate John Hagee\’s apocalyptic mega-church. He also documents his contentious experiences with members of the 9/11 Truth Movement, whose conspiracy theories he portrays as leftist parallels to the delusional beliefs of the religious right. Taibbi sees Americans on both sides of the political spectrum reverting to a new tribalism that makes communication and mutual understanding near impossible. In a book that is as darkly funny as it is depressing, Taibbi assails every aspect of modern-day America. Salon spoke with Taibbi about his book, calling people \"retards,\" and his pessimistic view of America\’s future.http://www.salon.com/books/int/2008/05/16/taibbi/P.S. Why did LB\’s fine insider\’s rant get shelved after only one day? That was a good solid line drive right into the pitcher\’s kisser! Print it and refer for future fall-out, it\’s a keeper.

The courts would be swamped (all that listening to who cheated who)and take many years to sort it all out. Many would die waiting. Perhaps this way is cheaper since this would drain the public purse with all \"we the people\" lawsuits….

http://www.realclearmarkets.com/The%2520Market%2520Economist%252005%252009%252008.pdf

Broadside volley on 2008-05-16 13:18:21 – Why did LB\’s fine insider\’s rant get shelved after only one day? That was a good solid line drive right into the pitcher\’s kisser! Print it and refer for future fall-out, it\’s a keeper.Yeah, what\’s the deal? I was planning several comments and questions about CDS credit creation? Someone upset that LB will not give his real name or LB gave too much info and THEY know who he is?

Is there any place left in Amerika where there is a free (not censored) exchange of ideas?

\"We bottomed. Next stop (SPX Cash) 1338, then 1368, then 1428. We could stumble there. Use a few ticks under each level as a stop for the next level. I\’m talking over the next month or so. For daytrading, buy dips on neg momentum, and sell on oversolds or tech levels. It will be choppy.\"3-20-08~jingle jingleSee you on the other side….and thanks for the help

exceptional read…http://www.marketoracle.co.uk/Article4721.html

THE NEXT BUBBLE HAS ALREADY ARRIVEDIsn\’t it obvious. Its the stock market. Relative to reality, it is as big a bubble as we\’ve ever had. And you know what always happens to bubbles, don\’t you?

I hate to sound like \"poor me\"… but I live in a small 900 sq ft house with my handicap mother and a mortgage payment of $300.00 month.. I anticipated a couple years ago that something was wrong and downsized. Now I have been downsized at work and no longer have a job. It kills me to think we will be giving money to people who live in 3000 sq ft houses when I am trying to just put food on the table in my 900 sq. ft. house.. I beleive before we start heading over big bucks to people living in huge houses we should be more concerned with the people who are losing their jobs.

The America of Jefferson or Washington or Ron Paul is a myth. These people might as well exist in my imagination. I feel so betrayed. I drank the Kool Aid believing that the United States could return to her ideals, but after the Orwellian insanity last few months I’m driven to despair. I can now see that NR is just the O\’Brien of this story.I now have nothing but distain for this country. For a long time growing up here I was actually ashamed to be an Arab-American. Today I am relieved. With my background plus my medical school education and residency training I can easily leave the United States and live in Dubai, Abu Dhabi, Qatar, Bahrain, or Kuwait after this ponzi economy inevitably collapses in the near future. There is great demand for my services there and Dubai\’s economy makes our \"free market\" look like 1980s CCCP. The small government there has no need to raise income through any form of direct taxation of corporations or private individuals. The modernization of the Gulf comes just in time for them to pay me for my services with a currency backed by productive capital investment and energy. With their tax code that encourages production and the coming de-pegged Gulf currency that encourages saving, it is apparent that the domestic productive capacity of this country will be eventually outpace any failed socialist state in North America or Europe.In closing, I have personal experience with both Medicare and this litigious, gluttonous society that refuses any personal responsibility for any of her actions. An American doctor can be sued for mental anguish if a drug seekr demands opiates and the doctor refuses to write the script, but conversely, they can also be sued if they write the script and patient becomes \"addicted\". 2 plus 2 equals 5 indeed.PS: NR\’s logic is a fallacious argument commonly known as argumentum ad populum.

Make that Taibbi. This author is \’projecting\’…

@guest who may move to Dubai,It\’s not America, this nation of people, that is despicable…it is the Federal Reserve/Military Industrial System that is taking us(the United States) in the wrong direction. This direction was accomplished by deception and deregulation. the People have been deceived about numerous things…how the economy really works, why we are in the Middle East in an \’endless war\’, why the system was allowed to be deregulated and turned into a casino with a house advantage, etc.And authors like Taibbi are spinning bull$%^& to explain the disenchentment of the masses.

VIX comming down to earth. Market goes up to sun.

@ guest who responded to me (Doctor Dubai Despair)You\’re right. However it is undeniable that this process has transformed the culture itself over the last 30-50 years. I was not alive then but I believe you are correct and that Americans as a whole were hard working, creative, and thoughtful at that time. This current perversion of American culture is the result of said external forces.

Sean says, \"All housing SPECULATORS receving aid…\"Sean, NO speculators are receiving aid. Please get with the program. Sean says, \"25% loss is really NOTHING.\"Fine. Please send me 25% of your assets. The point of this legislation is not to punish the guilty. It is to protect the rest of us from the declining property values, higher crime, and city budgetary costs that foreclosures bring. If you want higher crime, more city taxes, and your home value collapsing despite your great virtue, please oppose Frank-Dodd.

Written by Anonymous ibid. on 2008-05-16 23:21:08:The point of this legislation is not to punish the guilty. It is to protect the rest of us from the declining property values, higher crime, and city budgetary costs that foreclosures bring. If you want higher crime, more city taxes, and your home value collapsing despite your great virtue, please oppose Frank-Dodd.Protected from declining property values? What for? So you can sell to whom?Don\’t you get it folks? We\’re over extended. We CANNOT afford all those over-priced city/county/state/federal taxes!Fuel and food costs will continue to rise. Wages won\’t! Meanwhile home prices are made to stay arbitrarily high so that property taxes can stay up, which means a bigger cut into the food and fuel budgets of folks. And with those arbitrarily inflated property values the volume of home sales, with flat and or falling wages and inflated food and fuel prices, WON\’T increase! NOTE: food and fuel prices NEED to increase in order to start stabilizing the US economy (stop shipping food 1,500 – 3,000 miles; decrease CO2 etc.).And in response to the person looking to escape to Dubai, the issue really is about overall per-capita wealth. Also, Dubai uses a lot of foreign \"slaves\" to keep it going. Oh yeah, and Dick Cheney\’s old company is now headquartered there. A den of thieves…Mark

\"And you know what always happens to bubbles, don\’t you?\"of course, it get re-inflated into bigger bubble. just look at housing bubble, i say on average, the correction is about 10-15% since peak in 2006 (by looking at Case-Shiller chart). and we are talking about bailout or re-inflate strategy to pump housing bubbles now. yes indeed, bubbles always get to be re-inflated to bigger bubbles. deflating bubbles is not allowed.

@ Mark. Now you know why Dubai has a bright future. The corporate parasites have sucked this nation dry and they know the free ride is over. In the meantime they don\’t want to feel the coming pain. Halliburton knows what is coming….a repressive tax regime. Redistribution of all wealth from the few productive individuals the US has left – all so J6P can say his house is still worth 750K. Too bad a soda will cost $6. We will slide further into socialism because \"capitalism\" doesn\’t work. This borrow-and-spend economy, deficits don\’t matter, foreign borrowing to wage trillion dollar wars will never happen again in our lifetimes. After the downfall of the US the East will grow even faster. They don\’t have to save 50% of their incomes to lend to American parasites. They can save 30% for capital investment to improve their standard of living and buy washing machines, microwaves, TVs with the other 20%. Those \"slaves\" in Dubai won\’t be slaves for very long. They send their wages home to Pakistan and India and Sri Lanka. Those wages are invested in their local economies. They aren\’t wasted on plasma TVs and vacations they can\’t afford. Have you seen the Sensex? have you seen the Pakistani stock market? Those people understand deferred gratification. We have impoverished ourselves with the biggest transfer of wealth in world history to live high on the hog. We will have to produce as much as we consume from now on. And massive debt creation cannot solve this problem: It now takes 10 dollars of debt to increase the GDP 1 dollar. All the rest is inflation. It used to take 1 dollar of debt to produce a 0.90 cent increase in GDP because it used to be used in commercial development, not consumer loans. The days of the American parasite are over. If the government tries keep tightening the screw on the doctors and the scientists and the productive business owners they will ALL leave this country. I talk to \"white\" doctors who know what is coming soon. They can bail to Europe or Australia or New Zealand or even Dubai or China. Look at Jim Rogers. You can be my future \"slave\" when you are forced to work in a plasma TV factory for a nominal wage of 100K (real income of 20K) to ship TVs over to the middle east. Your paper shuffling job that is somehow related to debt production or retail or \"business\" will be destroyed as we no longer need you people. Peace.

And I will add – Haliburton will straighten up because the tit is gone. They know they can\’t rely on idiotic Americans to mortgage their future to get that evil \"Emmanual Goldstein\" over in Eastasia (afghanistan) or Eurasia (north korea) or our other fictitious enemies. 3rd world countries that have no navy or airforce or even a means to feed themselves at times. Also, the Sheik of Dubai is rich beyond belief and he does not bend to the will of interested mainstream media. So while there will be corruption it will never be on the scale of the US. Every single program in this country is related to nepotism or cronyism. Dubai doesn\’t even have an real army. That\’s 80% of the waste right there.

Dear Professor,Respectfully, I believe you are making a fundamental error.The FD plan which you support is designed to continue the treatment of housing mainly as financial collateral. In other words, to keep the MBS, CDO, CPDO, etc. credit creation machine going. We know, however, that this machine was responsible for pumping the credit bubble in the first place and causing the jump in house prices. After all, \"inflation is always and everywhere a monetary phenomenon\".Instead of trying to rescue financial engineering, we should go back to treating housing as homes. That is, price houses as shelter instead of raw material for tranche salami. This perforce implies an adjustment of pricing to sustainable multiples of earned income, i.e. housing affordability based on the ability to EARN, instead of the ability to BORROW.With respect,H.

Well, SWK. What else can we say except that you are a member of \"the party\" that intellectualizes this travesty. It all goes back to basic justice. You don\’t believe the Ayn Rand form of it. I have the numbers but you have \"the numbers\". In the end the party will get its way. But buy some gold and some energy boy. It is going to be a wild ride. Or maybe you will be buying dollars waiting for the coming rally.

And to use fallacies of logic they needn\’t be overt. For example.From wikipedia:In the opposite direction is the fallacy of argument from authority. A classic example is the ipse dixit—\"He himself said it\" argument—used throughout the Middle Ages in reference to Aristotle. A modern instance is \"celebrity spokespersons\" in advertisements: a product is good and you should buy/use/support it because your favorite celebrity endorses it.But in those commercials they just show the celebrity using the product. They needn\’t overtly say it is good. So all O\’Brien has to do is MENTION these people and he is committing the fallacy.Peace.

@ Anonymous 01:52:20, 01:58.18, 02:06:19For a moment, there, it looked as if your tangent was a fallacious ad hominem attack on me. Peace to you, too, my friend.BTW, I don\’t think Dr. Rounini was purposefully appealing to public belief or authority by innuendo, either. After all. After all, some smart guy on this blog would surely have caught it and pointed it out…SWK

A couple of weeks ago the professor said we will have no Great Depression II. So, what are we going to prevent with bail-outs? A severe recession … or are there really some fears we are heading towards a depression?

as languages go extinct maybe a couple currencies will intregate:eurourasioamerio

Guest writes, \"if you think we are still priced out of home, then think again because we will be priced out of home permanently starting the day of this legislation.\"Guest, there\’s a simple thing called supply and demand that pretty well guarantees that it won\’t happen. Supply and demand failed to produce realistic prices in the present case because mortgage risk was dramatically undepriced. Now, things have changed. Prices are likely to go sideways for many years. With normal inflation, house prices should be back to normal within a few years. Some people want the housing market to crash so they can get houses at fire sale prices. That would be just as unjust as anything that people say might happen because of Frank-Dodd. Mark writes\"Protected from declining property values? What for? So you can sell to whom? Don\’t you get it folks? We\’re over extended. We CANNOT afford all those over-priced city/county/state/federal taxes!\"Mark, the United States is one of the most lightly-taxed industrialized nations. The problem with our national cost structure has nothing to do with taxes. As for government, we d–n well better afford it, because that\’s what\’s standing between us and social collapse. That\’s who sends the police when we\’re in danger and fire trucks when our home is burning down. That\’s how we get water to our house and sewage out. That\’s who builds the streets and makes sure that our kids have a school to go to, even if we\’re out of a job.SWK/kilgores says, \"As for Barney Frank, he seems to have learned quite a bit about the economy.\"He\’s regarded as one of the most economically/financially literate of all congressmen. Granted, this is not a strenuous competition.

@ Anonymous ibid:It is nice to see I am not alone in these woods.

Written by Guest on 2008-05-17 02:17:25Thanks for your 10 points summary.“4. It encourages \’home owners\’ to stop payments to qualify.”It is a big possibility. A natural outcome I would say. The same force that driven Banks to repackage or create unqualified financial products into qualified ones and swap them against central banks’ treasuries.@ AnnS “I seriously doubt that ANY of these shriekers have read the proposed bills in their entirety”You seem to know what you are talking about and you fully read and understood all details of the bill. As I asked before, can you please give an “objective” description of these details? I really want to know. On a separate point, I might agree with you that “Mobs driven by anger and convinced of their own righteousness usually are horrible things to see.” But I would like to see answers to many fair objections against the bill presented on this board.I don’t know if the “argumentum ad populum”, as claimed by guest, was purposefully used by professor or not, but I have another critique of his quotes. Less than half of the quoted “analysts” explicitly endorsed the FD proposal (at least from the quotes). While I might strongly agree with the idea, as we say, the devil is in the details. The worse argument of all is Alex Pollock’s “governments always intervene when the bust leads to spreading panic and the risk of an out-of-control financial meltdown … Governments also typically intervene when there are very widespread mortgage defaults and foreclosures”. What an argument is that? Also, I believe it is as easy to quote other “economists” who are against the proposal.The best that this bill could achieve is to put a temporary (fragile) floor on house prices. From there, prices could rebound or collapse under its own weight. In the first case, it would revive the housing bubble one more time for few more years. In the second case, it will only be an additional cost to add to government deficit and taxpayers’ burden (where it\’s indirect costs might be higher than direct costs of $30B). Again I say that I am indifferent as of this proposal. Because in- and by itself, it’s not a solution to the housing mess nor an escape from recessionary forces. I would believe in this proposal, or any other bailouts, the day I see it is accompanied by other laws or legislations that punish the responsible of this mess and prevent other bubbles from forming (we may have a 50% chance (arbitrary) that we are in a commodity bubble, what are we doing to stop it? Or we should just wait until it blows up and then bail out Exxon & co.?) Until that day comes, this proposal will be just another maneuver to delay the inevitable consequences. Is that long-term visionary planning? Is this medium-term strategy? Is this short-term tactic?And until that day, America will be in the “walking away” mode.http://youtube.com/watch?v=fuNqDBstipU

For some reason, several of my posts have gone off into the bit bucket somewhere. I will try this one, again. I have no problems with government \"interference\" in the market since a free market cannot exist in the real world. At best, it is an archetype or Platonic Form. The Professor has obviously stared into the abyss and has decided that it is necessary that the Masters of the Universe get bailed out to avoid a systemic collapse. I, for one share his ultimate goal. I do not agree on the means. My view is that there needs to be some sort of punishment of those who chose to skirt the laws and regulations, and those who were asleep at the regulatory switch. Otherwise, The Professor and the other learned experts he quotes in this posting will be in the position of weak parents arguing with their obnoxious children about how this is absolutely the last time they will excuse the latter\’s egregious behavior. Until, of course it happens again, and again ad infinitum. If those of us who are living modestly and prudently must bail out the perps to save they system, what is going to be done to remove the incentives for future misbehavior? This is more than a matter of justice. There is only so much that the taxpayers can afford to pay to bail out their betters. This is especially true with the current global wage and salary arbitrage that is going on. How can we limit this to it being the last bailout? What sort of measures might be put in place, and how can we be sure that they will be followed? I suggest that since the Masters of the Universe are now firmly in favor of government intervention in the marketplace, we should seize the initiative by realizing that any firm that is \"too big to fail\" is in desperate need of being broken up via anti-trust action. This would seem to be a good place to start. What else would help fix the current extremely dangerous situation?

@ Anonymous 10:31:04I\’ve been very impressed watching Congressman Frank presiding over hearings as Chairman of the Financial Services Committee. He seems to have an amazingly detailed grasp of some very complex issues involving the current financial crisis and its potential impact on the real economy.SWK

PeteCA, I think what most state and local governments are hoping is that this mess will be over in a quarter or two and then it will be back to business as usual. Most public sector managers are Progressives, and firmly believe that things only get better and better, and the way to ensure this is more governmental activity. As most of the people on Wall Street have never seen a really nasty recession, say like the one in 1981-82, most public managers have never really seen one either. They are not thinking much of what happens when revenues drop and keep dropping. There is a lot of discussion going on about peak oil and peak food. What I see happening also is peak revenue. When most taxpayers are actually making less each year, they are not going to be able to fund an increase in governmental activity, no matter how well intentioned it is. We are living in interesting times.

Confessions of an economic hitman. If 1/2 is true, it disgusts me.http://www.youtube.com/watch?v=T6ITC5IL2Mw&feature=related

@ SWK “He (Roubini) merely notes that momentum appears to be gathering for intervention, contrary to what critics of intervention may want.If the politicians pass Frank-Dodd, they are going to find opposition like they’ve never seen before. We’re investors, here: but think how Joe Taxpayer is going to react. The politicos and Media can talk about all the social issues they want, but when they talk about housing, they forget that nearly everybody has one. And when they say, \"Oh, we know you have one, but you’re not as important as the person who’s not paying his share,\" my advice is for them to step way back, because when the (FD) mess hits the fan, we all know what happens.

The plan is nothing more than a parachute. Supply and demand determine prices, and the plan will hopefully control the descent so things aren\’t destroyed at the end. But economists and policymakers could see this coming. Hopefully this free-market unregulated bulls#it attitude has been disproven. More government oversight is necessary, and yes bubbles should be pricked early by sound regulation and monitary policy. If it is worth bailing out now, it was worth regulating then.

Excerpts from Bill Fleckenstein’s latest Contrarian Chronicles — “In favor of bubble-free prosperity”:…As an aside, I am not a proponent of intervention generically. I prefer as little government meddling as possible, be it from the White House, Congress or the Fed. But since the Fed has decided that it\’s going to print money and manage the business cycle by picking the \"right\" interest rate, it needs to be particularly careful about setting off an asset bubble. Asset bubbles need to be stopped before they\’re started because they have dire consequences — for example, the recession that followed the 2000 stock-market peak, the bust we\’re in now (which has plenty more to go) and the bust Tokyo experienced for a decade or so. That is what happens when asset bubbles are allowed to build.Prosperity does not need managing. America has had booms and busts for its entire existence. There is no need to try to check prosperity. (Peter) Bernstein completely mischaracterizes those of us who oppose the creation of bubbles: \"In some ways, those who echo (Treasury Secretary Andrew) Mellon\’s view about letting downturns run their course are inconsistent in their arguments. This school favors government intervention on the upside, but wants no part of government action when trouble develops.\" That is not correct. We do not favor an asymmetrical approach to bubbles. What we believe is, if bubbles are stopped, there would be no need to ride to the rescue in the downturn… Stepping back in time to my column \"If only Greenspan could be Volcker,\" here were my thoughts, three years ago, on the prospect of our current downturn — in which I also offered my suggestion for inducing real prosperity: \"One of the most obvious (ways) would be to raise short rates to a level higher than the underlying rate of inflation (i.e., 5% to 6%) and take back some of the absurd stimulus that Alan Greenspan has foisted on the economy repeatedly over the last decade. This would simultaneously increase savings, reduce consumption and hurl us into recession. But we are headed there anyway. So let\’s get on with it before even more damage is done.\" Of course, the path to genuine prosperity was the path not taken by Greenspan. Even so, Bernstein advocates the asymmetrical approach favored by the former Fed chairman: Do nothing to stop the bubble, but when it inevitably bursts and threatens massive damage, attempt to ameliorate the downside. It is this asymmetrical approach that landed us where we are…

\"The only way is to bring prices back to their historic relationship to salaries.\"that is not going to happen when government put in place higher home price guarantee policy. no, home price will not be allowed to fall. we will pass legislation to guarantee higher home price. we will guarantee toxic waste.

Throwing good money after bad.

From the Bloomberg article where Roubini is referring to:“We need to help define the bottom. This bill helps us do that.\’\’ Is the government going to define what the price of a house should be? Where were they over the past four years?

This plan just shows us that the government hasn\’t learned anything from the Great Depression. Trying to prop-up wages, prices,… using tax payer money makes matters only worse.

For two years, I have been writing about what I call a Decession, which is far worse than a Recession, but not as bad as a Depression.Today I am convinced we are headed towards a Depression, and I don’t see any means to avoid it. The reason for this statement is simple. Inventory of homes is now beyond a two year supply and growing, while prices are falling off the cliff. That does not even include multi-family housing, as this market was also overbuilt. But it gets worse.Even if builders stopped building homes today, prices would not stabilize. And, unfortunately, builders are still building. They are trying to monetize land and they have non-recourse money that is basically use it or lose it. Moreover, if the builders don’t build, the executives can’t get paid multi-million dollar packages and obscene bonuses. So they build. And they lower prices and eat away at shareholder equity. Without a doubt, at least a third of today’s builders will be bankrupt within the next 18 months. Maybe more.Back to why I believe the coming conflagration will top anything we have ever experienced. The largest source of inventory is the homes moving through the foreclosure process and deeds in lieu of foreclosure. I estimate this will extend the national inventory to at least a 36 month supply . . . and in some markets double that. If you think I’m nuts, I’m used to it. Most people have told me I am nuts for the past four years. But I’ve been right on the mark all the way.Over the past few weeks we have seen lenders that are giving up, when it comes to the disposition of inventory. Instead of putting policies and procedures in place, these lenders are slashing staff and outsourcing property disposition. The failure of lenders to get this under control is forcing prices down on a national level. It is not just Florida or Arizona or California. And the reason for the failure is the same reason we are in this position to begin with. There is no accountability and no regulations regarding what the lenders are doing. The snakes have moved out of the mortgage business and into the REO disposition business. These guys are taking the lenders to the cleaners.I’ve written about one example at Fannie Mae. This week we experienced a similar horror story with GMAC. We are seeing outright fraud, but no one wants to make any attempt to stop it. The result is horrifying. Homes that should sell at $300,000 are being sold at $225,000. This lowers the bar for the rest of the inventory, because the appraisals will tag the $225,000 sale. The banks are letting the slime control how their inventory is sold. We have yet to find a single person at any of the lenders that wants to hear about the fraud or the negligence that is common place. They simply don’t care. Their only goal is to unload inventory. But without accountability, process, procedures and regulations in place, all they are doing is destroying the market.By the way, property preservation is also outsourced to the snakes . . . and they couldn’t care less. So as this inventory sits, it costs the lenders money, but it also means mold in homes where the electric is turned off, as well as rodent and bug infestations, vandals, etc. Once again . . . no one is at the helm of the ship. Strike that. There are fat cats with big paychecks at the helm of the ship, but they are in the galley gorging themselves on food and drink, living it up at the expense of the country.The second part of this is also lender created. As they dump inventory and allow the crooks to take advantage of them, the lenders pull back in their lending arms. And this feeds the conflagration further. When buyers can’t get financing, prices drop lower until financing either is approved or a cash buyer shows up to steal a property . . . and flip it within days.The cycle is set, and I don’t see any attempt to slow it down or regulate it. I personally don’t see any means to avoid a depression when you have millions of homeowners losing their homes. This spreads out further, because property taxes come down as values come down. Now you have communities that are cutting police, fire, education and the basic elements that make the United States of America GREAT. Look around. Look at what people are selling at garage sales. Read the papers beyond the first page, and you’ll see stories about regular guys robbing banks and gas stations . . . because they have no other way to put food on the table.The banks will fail. They cannot possibly continue to absorb the losses they are taking at the hands of the crooks that now control the REO markets.Maybe I’m not making as much sense today as I normally do, but I’m in a bit of a fog. If you heard the voices of the people I deal with every week, and you saw the tears in the eyes of the kids that are crying because their Dad is crying . . . then maybe you would understand just how bad it is. If you spoke to lenders that are absolutely clueless as to what is going on, and maybe you heard the total disregard the lenders’ executives have for the problem . . . then maybe you’d have some sense of just how bad it is now . . . and what you will be reading about in 3-4 months. The lenders have lost control of the fire. It is no longer a brush fire. It is a conflagration, and the lenders are using jet fuel to try to put it out.Regards,Mike

Professor, I will try again to suggest an alternative to the Frank-Dodd bill. Have Congress direct the SEC to allow the banks and shadow banks to write down their mortgages and hold these write-downs off balance sheet. Much like they currently do with level 3. Call it level 4! Call them – mark to ‘we really don’t know right now’. Under this accounting move the banks are given a set period of time, say 10 years, that they must bring them back onto their balance sheets. This proposal puts the burden on the banks. Where it belongs! Not on the taxpayers! It also keeps the government from having to become a bank for homes.The variations of how this new accounting rule could be set up are obvious. It would stop the current concern of a crashing housing market. It would simply have the same effect of drawing it out over time. Finally, it would be much easier to implement.

@Medic: Then, I can only state that you and I are reading history differently. In my opinion, government intervention (New Deal stuff) just prolonged the depression. Interesting times we live in.

This bill does not address the real problem that is a price bubble on housing, it is doing the opposite. You want to sustain the price level and bail out the creators of the bubble. Your remedy is the cause.The cost of the bill could be much greater than your assumption. Because, due to your artificially price floor, people will spend more money on housing than they would without the bill. Eventually house prices will reach a normal level. I cannot see how more money spent on overvalued assets will make a lesser cost.Furthermore risk moral hazard is obvious to everyone. Who needs fiscal discipline anyway?Your argument and I quote “Unfortunately for the critics of this proposal the experts who are supporting it are very broad and ranging from Democrats to Republicans” is childish. More people supporting a bad thing doesn’t make it better.

@ Jason B — “The plan is nothing more than a parachute and the plan will hopefully control the descent so things aren\’t destroyed at the end… Hopefully this free-market unregulated bulls#it attitude has been disproven…”Yes, the FD plan is “nothing more than a parachute,” with Frank and Dodd and the bankers managing the extraction of our economic freedoms—all the way down…And, when an oligarchy controls the rules and competition of a nation’s wealth, I call that monopoly, not “free-market unregulated bulls#it.”

Maybe we should rename the blog header, \"Broad support for sending steerage and crew below waterline with hammers and oakum. Meanwhile those giving orders slip into the lifeboats wearing petticoats and disguising their gender to save their necks at price of honor\".We are witnessing a wild-eyed search-about for the bagholder of last resort. Knowing that a catastrophic casualty list will ensue, TPTB are running up the backs and jumping from shoulders trying to save their own worthless skins. And barking from their soft beds and ample tables –\"Once more unto the breach, dear friends, once more, Or close the wall up with our English dead! In peace there\’s nothing so becomes a man As modest stillness and humility, But when the blast of war blows in our ears, Then imitate the action of the tiger: Stiffen the sinews, summon up the blood, Disguise fair nature with hard-favored rage; Then lend the eye a terrible aspect: Let it pry through the portage of the head Like the brass cannon; let the brow o\’erwhelm it As fearfully as doth a gallèd rock O\’erhang and jutty his confounded base, Swilled with the wild and wasteful ocean. Now set the teeth and stretch the nostril wide, Hold hard the breath and bend up every spirit To his full height! On, on, you noble English, Whose blood is fet from fathers of war-proof, Fathers that like so many Alexanders Have in these parts from morn till even fought And sheathed their swords for lack of argument. Dishonor not your mothers; now attest That those whom you called fathers did beget you! Be copy now to men of grosser blood And teach them how to war! And you, good yeomen, Whose limbs were made in England, show us here The mettle of your pasture. Let us swear That you are worth your breeding; which I doubt not, For there is none of you so mean and base That hath not noble lustre in your eyes. I see you stand like greyhounds in the slips, Straining upon the start. The game\’s afoot! Follow your spirit; and upon this charge Cry \’God for Harry! England and Saint George!\’\"ARS had no-show, bid fail, purchase declines. Maybe the sheeple will do the same when asked to \"plug the breach\" with their small purses and final sacrifice.

@ Mike, cc SWKI had a specific question about your post, but I saw it was answered on Mish bolg.As I can see from your website, you are a broker & REO consultant. You are one of those in the frontline, and your testimony, coupled with SWK\’s (about foreclosure legal issues) gives a hell scary picture of the shape of things to come. What are the odds that the FD bill could circumvent these problems? Instead of listening to corrupted, self-interested bankers, politicians (and economists) should probably listen to people on the ground (but I think they don\’t want to hear that).I am still stunned, no bailouts are yet voted, and we can see these kinds of behaviors. I see too reasons why things do not get to normal as they ought to be (and getting worse) and why any bailouts in the kind of what the Fed is doing or what FD are proposing won’t work. Forget about moral hazard.First, the mechanisms that normally drive things (prices) to equilibrium (such as supply and demand) are broke. As noted by Mike “REO’s could not find anyone with any authority to take an offer”. Also SWK suggested that many mortgage buyers could not prove ownership on houses which makes a lot of people who should have defaulted and foreclosed piling in the 60+ day late categories. As banks tighten their lending requirements, households will find it difficult to buy/finance their house mortgages and other necessities, unless house prices come to reasonable and affordable multiple of earnings (real wages are declining or stagnating, food, gas and other products’ prices are shooting the moon, credit is tightening …)Second, there are still reckless behaviors from profiteer snakes and “arbitrageurs” who make things worse and bailouts unproductive (or much more costly than it is supposed to be). Central banks opened TAF and TSLF-like facilities to swap worthless, illiquid securities. There is evidence that many banks either created new securities or repackaged their other unqualified assets into qualified triple AAA securities and swapped them with CB’s treasuries. Also, “ROE agents are not even bothering to list the homes”. These “snakes” never get caught or punished. Why would they stop f**ing the system? What am I saying? This is normal business behaviors that were nurtured by the system. God knows what kind of reckless behaviors will appear after the FD bill is enacted (the most obvious of which is that people will stop making payments to be eligible).I also understand why professor is urging on the FD bill, if nothing is done in the next 2 months, anything, then we are doomed, at least if we believe the congress/next president have the willingness or ability to save us. The effects of what is stated by Mike and SWK will take some time (few months?) to spread to the whole economy (banks, corporate earnings, consumptions, more defaults). This is maybe why, as noted by PeteCA, ‘People are still out living the \"good life\"’.If we are living in the verge of a serious recession, then I think it will be the most documented and foretold by non-officals of all.

@ Afa 14:50:33Securitizing mortgages is not really new. Freddie Mac and Fannie Mae have been doing this for some time. The difference between theirs and the spate of MBS instruments that have arisen during this bubble, however, is significant. First, Freddie and Fannie have real income and other criteria in place that must be met before a loan is made, Second, Freddie and Fannie are in a position to sue to foreclose. Third, Freddie and Fannie guaranty that they will buy back the securities if the mortgages backing them go south, and their credit is, in turn, implicitly backed by the full faith and credit of the U.S. government.In an earlier thread, someone asked me what I thought about the federal government stepping in to buy up bad mortgages. I responded that I thought it might be a good idea to do so, because it would accellerate a resolution of the current crisis by unifying ownership of the toxic waste. As a homeowner who pays his mortgage on time, while I don\’t appreciate others getting off after being irresponsible, I surely don\’t want to lose my home because we were more concerned with not wanting to give a break to the guilty few that with the prevention of a collapse of the overall economy that would adversely impact guilty and innocent alike.SWK

@ Afa 14:50:33Securitizing mortgages is not really new. Freddie Mac and Fannie Mae have been doing this for some time. The difference between theirs and the spate of MBS instruments that have arisen during this bubble, however, is significant. First, Freddie and Fannie have real income and other criteria in place that must be met before a loan is made, Second, Freddie and Fannie are in a position to sue to foreclose. Third, Freddie and Fannie guaranty that they will buy back the securities if the mortgages backing them go south, and their credit is, in turn, implicitly backed by the full faith and credit of the U.S. government.In an earlier thread, someone asked me what I thought about the federal government stepping in to buy up bad mortgages. I responded that I thought it might be a good idea to do so, because it would accellerate a resolution of the current crisis by unifying ownership of the toxic waste. As a homeowner who pays his mortgage on time, while I don\’t appreciate others getting off after being irresponsible, I surely don\’t want to lose my home because we were more concerned with not wanting to give a break to the guilty few that with the prevention of a collapse of the overall economy that would adversely impact guilty and innocent alike.SWK

Sorry about the quadruple post, everyone. Guess that\’s better than losing one…SWK

Several recommended actually reading the FD legislation before forming and expressing an opinion regarding its worth. Great idea! The following links will take you to both the House (Rep. Frank) and Senate (Sen. Dodd) versions; House: http://www.washingtonwatch.com/bills/show/110_HR_5830.html (click on “Read the Bill” & select H.R. 5830.RH) Senate: http://banking.senate.gov/public/_files/GSEBill.pdf (387 pgs – I couldn’t find a condensed version or an executive summary)You might find the following helpful as wellHouse: http://www.washingtonwatch.com/bills/show/110_HR_5830.html (click on “Read an Analysis of the Bill”) Senate: http://www.cbpp.org/4-8-08tax.pdf After reviewing, conduct your own analysis. Although tedious (skull drudgery at its best), I waded through the initial draft of the House bill earlier this spring. In addition to underlining and margin notes, as well as numerous question marks & exclamation points, I also constructed a simple spreadsheet. My interest wasn’t verifying the Congressional Budget Office cost estimate. I wanted to know if the legislation \"made sense\"; did it correctly identify the “issues”, was government intervention necessary, who would receive and wouldn’t receive assistance and why, whose interests were protected and advanced, did the benchmarks (i.e. 85 & 90%) make sense, etc.This approach compels you to confront the legislation’s underlying assumptions, as well as many \"details\" that are bound to not only raise your eyebrows, but probably bring you to a full boil – its sausage making at its best.

For me, the next big event is what will happen in 4Q 2008. The majority of sub-prime loans will have aged about 18 months, the 17% increase in M3 money supply and oil prices will be pushing on inflation. And then there is a looming recession. So I found Prt1stAskQLater and Mike Morgan\’s posts insightful in trying to flesh out the murky future. To this end, I have combined and re-phrased their posts. Feel free to let me know if you think I have overstated the case…After a residential mortgage back security (RMBS) is sold it can be compared with other RMBSs issued in the same time frame since they tend to have similar underwriting criteria and can be quantified by an average rate of delinquency, defaults, etc. After a year or so, the RMBSs complete an early shake-out period of mortgage defaults. After this shake-out period the remaining credit obligations in the portfolio are believed to honor their commitments for the remainder of the mortgage lifetime. One way to predict these early defaults is to use the mortgage payers\’ Fair Isaac Co (FICO) score. The FICO score ranges from a low of 500 to a high of 850 and a FICO score in the range of 580-610 is considered a high risk loan.As least on person who has reviewed RMBSs at the national level and noted that a significant number (about 40%) of RMBSs that have already passed the critical year or more shake-out period have high risk FICO scores (i.e., sub-prime mortgages). This fact, combined with a one-two punch of inflation and recession will lead to mass homeowner walk-aways, which will create a general decline in home prices and make the Great Depression (~25% decrease in GDP) look like a Little Depression.Inventory of homes is now beyond a two year supply and growing, meanwhile home prices are down ~15% and continuing to spiral downwards. This excess inventory does not include new multi-family housing, which is also overbuilt. Even if builders stopped building homes today, prices would not stabilize, but builders continue to build. Since the builders have non-recourse bank loans, they either give up now and loose everything, or they continue to build, draw a salary, and hope someone buys. If no one buys, they can still walk away and leave the bank with the new construction. So they build, forcing lower prices with more supply, and eat away at shareholder equity. In all probability, at least a third of today’s builders will be bankrupt within the next 18 months.The largest source of house inventory are those moving through the foreclosure process and deeds in lieu of foreclosure. This will extend national housing inventory to a minimum of three years and in some housing markets maybe as long as six years.Beginning May 2008, lenders have given up on an orderly disposition of foreclosed houses. Instead of putting policies and procedures in place, these lenders (e.g., Fannie Mae and GMAC) slashed internal staff and outsourcing property disposition. Now the same businesses that had been doing corrupt mortgage loan origination have reopened their doors as real estate disposition businesses. And just as before, there is no lender accountability or regulations regarding these same people who now control how the bank\’s inventory is sold. Homes that should sell at $300,000 are being sold at $225,000. This further pushes home prices lower since appraisals automatically tag the $225,000 sale as a \"comparable.\" Lenders do not want to hear about the fraud or the negligence that is common place because it is not their money; they are just a \"maintenance agent\" for the CDO investors. The bank\’s only goal is to unload inventory, even if market destruction happens as collateral damage. Meanwhile, the same people who made millions in corrupt loan originations are now making millions selling houses at undervalued prices, taking the CDO investor to the cleaners. This not only happing in the hot spots of Florida, Arizona, and California, but it is forcing prices down on a national level. Adding insult to injury, \"property preservation\" is also outsourced to the same property-disposition businesses and they couldn’t care less. As house inventory sits, electric is turned off allowing mold to grow; rodent and bug infestations are common, vandalism goes unimpeded, and so on. Again, there is simply no accountability and no regulations regarding what the lenders are doing.While the insiders are feasting on the carcass of excess housing, lenders have now become extremely conservative in loan origination which also adds to the downwards spiral in home prices. When buyers can’t get financing, prices drop lower until financing either is approved or a cash buyer shows up to steal a property and flip it within days.Just as the upward rise in home prices seemed unstoppable, there does not seem to be a way to avoid a Depression (10-20% loss in GDP), Great Depression (20-25% loss in GDP), or Mega Depression (greater than 25% loss in GDP). Up to 10-13 million homeowners could lose their homes. Banks cannot possibly continue to absorb the massive losses they are currently taking at the hands of the crooks that control the property disposition and property preservation markets. As these losses spread, property taxes will drop as home values come down, communities will cut police, fire, education, and other basic elements. Even though this whole scenario has just begun, look at what people are selling at garage sales; read the papers beyond the first page and you will see stories about regular guys robbing banks and gas stations because they have no other way to put food on the table. It\’s just a glimpse of what is to come.

Another version of \"Let them eat cake!\". Society is a durable thing. It can take the hard events. Like the training a greenie experiences under a seasoned gunnery sergeant. Despite the \"eat bitterness\" discipline, that recruit knows the hardening process is for his and all\’s greater good. Condescending or indulging the moral weakness in a system in order to \"protect it\" is only a faster means of corruption. Give them the hard option, give them the unpleasantness their actions deserve, don\’t mitigate, don\’t stumble, but put the hard edge of husbandry for our society\’s sake to the malefactors and foolhardy. In the end, they know it is the correct path. In the end, they know it is for the cleansing and purification of the system from which we all derive clean existence. If, rather, you chose the other accomodative stance, putting crutch under crutch to support insupportable systemic racketeering, then you embolden the evil in all men\’s hearts and give incentive to the worst in all and some of us. You must choose, eventually, between enabling slippery ethics which leads to a spurning of economic endeavors OR harsh order that will cause short-term bloody purges but remediate the disease. You must choose whether to excise all the malignancy of the cancer or choose to live with the malignancy for whatever term of life is left, until it destroys absolutely everything. I choose not just for myself, but for the generations to come the hard and thorny path…it leads to a garden of plenty.

\"Is the government going to define what the price of a house should be? Where were they over the past four years?\"this is a stupidest question i ever heard. the government doesn\’t have to define the price of house. it just need to put a mental floor and keep the price from falling. in fact, they just need to keep housing price from falling, then that is the mental floor. then it is back to re-inflating housing bubble again.

ptm wrote :\" No commentary required… http://news.hereisthecity.com/news/business_news/7869.cntns1. Mizuho Financial Group – $5.5bn in writedowns / credit losses, 2,000 wholesale banking employees, $2,750,000 per employee.2. Wachovia – $7bn, 3,900, $1,794,872 per employee….\"It looks like a lot of money but these guys make USD 2-5 mio profits every year… (I suppose at least)

PLEASE, NOT ANOTHER FDR (WESTLEY) (von Mises Institute)Why do economic downturns always produce a predictable supply of pundits calling for expansion of government power? Don\’t these people realize that those who ignore economic history are doomed to repeat it?Inflationary, bubble-like periods don’t erupt in a vacuum. They result because the government increases the money supply and sets in place unsustainable economic growth. When this happens, the resulting boom makes a bust inevitable.But what about when the bust comes? During an economic correction, characterized by a decline in economic activity resulting from the overproduction during the boom, prices, wages, and interest rates must adjust. In fact, the quicker they do, the faster the correction, and the shorter the recession.Consider the widget manufacturer whose inventories are clogged with widgets no one will buy at going prices. He can\’t produce more widgets until he sells the ones he has. He might lay off workers until his inventories fall, which happens when he lowers his prices, perhaps selling at cost or even at a loss. Growing inventories are one of the forces creating downward pressures on prices for good reason.When this happens and inventories are reduced, he may be ready to expand output again. In other words, he recovers. This, in a nutshell, is what happens during any market correction across many industries. These corrections were called panics prior to the 1930s, and they were short-lived affairs, lasting an average of three months.Today, they are called recessions, and they last longer, because of state interventions in the price system. In the 1930s, a run-of-the-mill correction grew into the Depression because the government intervened in massive and unprecedented ways to stop prices from falling. It set prices as much as the Supreme Court would allow. It forced the destruction of new output that would add to the existing downward pressure on prices. And it demonized businesses that didn\’t cooperate with this lunacy, first with symbols such as the NRA\’s Blue Eagle, then with Roosevelt and his Brain Trust\’s attacks on the private sector and private capital.When prices in the goods market (or wages in the labor market, or interest rates in the money market) aren\’t allowed to fall, the correction process can be extended indefinitely. This is the central lesson of the economic calamity known as the Great Depression. It is why, first for Hoover, then for Roosevelt, good times were always just around the corner.Good times did eventually come, but they weren\’t caused by the introduction of a world war costing tens of millions of lives. Much economic research, including (for instance) some of the important contributions of economic historian Robert Higgs, indicates that the Depression ended when most of the New Deal programs were discontinued by Truman and his discredited Brain Trust was sent packing. It wouldn\’t be until 1954 that the stock market would recover to its pre-Depression level.

@ Guest on 2008-05-19 06:29:43That may be the most simplistic and skewed version of events I have ever heard in any discussion of the GD. Thank you for the first grade version. And was Santa food to you last year?

In that case, the future we are facing will also be very \"skewed\" from your point of view.

A question for all those smart people overhere from a mortal simple soul: Where is the free-market / equilibrium price floor in the housing market? Shouldn\’t this floor be known before government can determine the \"equilibrium-corrected\" floor, aimed for using a bail-out?

\"if home prices don\’t correct sufficiently by then, we\’ll wait until 2010\"flaw in your logic. so if home prices never correct sufficiently, then you will wait forever? floor is now. housing price will not be allowed to fall any further. government and FED will pump liquidity to stop any more fall in housing price. floor is now. housing crisis is over, when you have backing of government and FED to support housing price.

I vote no on any more bailouts for anyone. I\’m sick to my stomach over the blatant bailout of JPMorgan via Bear Sterns, and the bailout of criminal banks and brokers via the Fed window. If you bought more house than you could afford, tough sh*t.I\’m not paying to keep this crooked, impossible pnzi scheme going. Let the whole system blow itself up, that\’s fine. We\’ll start over and maybe this time we\’ll actually stick to the Constitution.