Sometimes You Eat The Bear, Sometimes The Bear Eats You – Stearns Thoughts
That whole financial disaster, black hole rivaling the Great Depression, collapse of the American economy thing is oh so last week eh? Because from what I can tell this week, Britney has been on a sitcom, Barrack (gasp!) has listened to a fiery preacher man, Bush and McCain say stupid things (okay, that is not news, but it is being reported on), and Hillary (gasp!) won’t quit a race that is essentially neck and neck (and this reference does not make this a thread for discussion of the horserace, so give that a rest). What happened to the biggest financial crisis in our nation’s history?
What was the the Bear Stearns takeover/bailout about anyway? Who really benefitted in the present? What does it portend for the future? I don’t have these answers; but I have a lot of questions and the ground seems to be morphing so fast on this that not only are we not getting answers, the real questions are getting left behind in the wake. To paraphrase Wilson Pickett, we need to "slow this mustang down" and think about what has occurred and where it will lead us for the future. Really, the implications are pretty incredible. The federal government, under the cover of a spring weekend, stepped in to force one private financial company to sell itself to another private financial company at a price more than fifteen times less than the market valuation at the time. And then the government pledged the public’s money to guarantee the worst parts of the deal. Wow. And here I thought the free market was the golden holy rule for those currently running our country into the ground.
How did something so huge, and with so many far ranging implications, happen literally overnight? One thing is sure, if the economy was as great as they say, and Bush and his band of merry pillagers were on top of everything as much as they claim, this never would have happened. There has been plenty of discussion about the sub-prime shitpile and the exponential rise in derivitives in the financial industry, but my question here is what really happened with the Bear Stearns deal itself? Thankfully, people that know a whole lot more about this than I do are starting to ask the right questions. Today’s example is an outstanding article, "Liberalisation’s Limit", by Mark Thoma at The Economist’s View.
Quoting Martin Wolf once more, he says "times of crisis are when new functions emerge." This article is something I came across in a search – it’s an "interview" of Carter Glass by the Minneapolis Fed – that discusses how crises cause change (you’ll see why interview is in quotes).
Two additional topics are discussed in the "interview" that have come up here recently, the erosion of the "walls between commercial and investment banks" that occurred in the late 1990s (that’s when this interview was conducted), and the erosion of regulatory authority as banks found ways to evade regulations, i.e. "national banks had created affiliates as a way of doing precisely those things that the National Bank Act prohibited them from doing." Thus, in that respect, the motivation for the regulatory change that produced the Glass-Steagall act is the same as the motivation for more regulatory control today – the existence of a shadow banking system outside of regulatory authority that has the ability undermine faith in the financial system, or to produce feedback effects that can cause banks under the Fed’s authority to fail
Please, read the entire article (and, really, the links and sources cited therein too), it is very good.
Okay, so if I understand this correctly, the government took an unprecedented (at least under the modern Fed structure) action to insure, with the people’s money, a privately sector non-traditional bank entity; and the general conclusion is that this will have to now be the new norm, but there may be a little bit of regulation in the offing in return. This seems to be exactly where Treasury Secretary Hank Paulson and Senators Baucus and Grassley of the Senate Finance Committee are headed.
Maybe this was all the right and necessary thing to do. Maybe not. Here is what I have seen in the week plus since the Bear deal hit the public conscience. JP Morgan Chase bought Bear for less than the office building was worth, the people at Bear that got themselves into this mess are getting bonuses to stay on and create more mess, even Morgan/Chase realized the deal was too absurd and raised the purchase price, average citizens and homeowners still cannot get an ounce of relief from their government, there is no talk of banning the financial instruments that got us here and instead the government is moving to adopt, incorporate and insure them, and the financial institutions that created this nightmare have all had big gains in their stock prices because "investors" now see them as being protected by the government.
Did we just save the economy or just make a bunch of the wealthiest Bush/Republican base a whole lot better off at the expense of the taxpayers?
UPDATE: Hey, here’s a good one. Turns out that JPMorgan Chase & Co head Jamie Dimon held a Federal Reserve board seat while Chase was in negotiations with the Federal Reserve over a deal to acquire Bear Stearns at an insanely low price. How convenient.
UPDATE TWO: A post on this subject has come up on FDL by Robert Johnson, one of the presenters at the big TBA conference that Marcy recently attended. "Crisis on Wall Street – Shock Doctrine Opportunity – Notes from Take Back America Panel" Take a look at it.
They say Barney Frank holds the keys to banking reform…
Good man, him.
After the fact reform, always…
Does the final four at the NIT count?
UMass v Florida…
Sure, if you win you get to brag “We’re Number 65!!!” for the year. /s
“Did we just save the economy or just make a bunch of the wealthiest Bush/Republican base a whole lot better off at the expense of the taxpayers?”
A little of both, I’d say. The Fed, rightly in my decidedly non-expert opinion, did not want to play chicken with the markets at this time and tough out a Bear default, so it blinked. On the other hand, JPM got a really sweet deal, which was reflected by the billions they set aside to cover lawsuits from Bear shareholders. They should have driven a harder bargain, and gotten some security over Bear’s assets and mortgages, which I’m sure are worth a lot more in book value, even in the deflated bubble, than the $2 per share reflected, and therefore got some potential upside in return for the $30 billion potential guarantee.
It’s more than that though. The share prices for all of Chase/Bear’s competitors has been up too because investors now see them as protected by the US government. It seems to me this may just be another case of rewarding the malefactors, incompetents and bloodsucking fools that got us where we are. Should we give them a Medal of Freedom too like we did Wolfowitz and Bremer? How can you now not give the same deal to the next Bear Stearns? How do you decide which private business gets saved and which does not? Is that the role of the US Government?
“should we give them a Medal of Freedom like we did Wolfowitz and Bremer”
Fucking up seems to be the gold standard for the Bush administration. It was quite obvious that in the Bush administrations book Wolfowitz and Bremer did not fuck up… they have made the defense industry lots of money in the illegal and immoral war in Iraq!
All I know about the economy is from knocking on doors of Appalachian families in southeastern Ohio and on doors in inner city Columbus and Cincinnati during the last three elections. Lots of mothers and fathers working one or two jobs at minimum wage and on top of that persistent struggle they often have a kid serving in that bloody and illegal war in Iraq.
You can be sure that most of these folks have never heard of Bear Stearns!
bmaz, in looking at the Fed bail out of Bear Stearns, I think we need to keep an eye on the point of Spitzer’s February Op-Ed in the WaPo. Perhaps the hasty move by the Fed was to prevent Stearns’ demise in order to limit scrutiny of the regulatory climate that led to its collapse. I wonder whether Spitzer’s charge (that the federal government actively worked to prevent state level enforcement of predatory lending laws) is simply too explosive in an election year that is already looking bad for the Republicans. I would not be surprised if the weekend bailout of Bear was done specifically to keep a lid on the complicity of the federal government in the sub-prime fiasco.
That sure looks to be a result, irrespective of the intent, at this point doesn’t it? Excellent point….
Agree.
Also, what about those calls from Roger
(please let me watch while you do my wife)Stone to Spitzer’s father? Was Wall Street trying to prevent Spitzer from writing the op-ed, by blackmailing him about the hookers?A few weeks back there was a post on predatory lenders (I think at FDL but it might have been here). I’ll try to find it later and link. I had posted links to all the campaign donor information from predatory lending institutions- both mortgage and cash advance check cashing institutions. The stats are amazing. Their lobbying efforts are amazing as well.
I’ll find the post and link…
And yes, this is a bailout on many levels including election year politics…
Okay, we taxpayers are putting $30 billion on the line. What share of any profit do we expect to see?
beware the ides of march … and yea the end as well ..
taxpayers don’t share profits ..they share losses .. what were you thinkin’
i heard dick cheney has been buying forclosures and then eating the forclosees …
anything to that ??
Thanks very much bmaz.
This
privatizing profits and socializing risk,imho, is a much more front burner issue with the GOP and wealthy Americans than is Iraq and the price of oil. As someone here asked, (Dakin…?), if BSC is worth $2/share, what are the rest of the Wall Street banks worth?I think that’s another reason JPMC wanted to bump it up to $10/share. FWIW, as recently as February, BSC was trading above $85/share. I think affluent Americans now understand, they may well have to choose between funding the kids education, or retiring, or neither.
As I understand it, via the derivatives (credit swaps), when they write down the value of individual mortgages, they’re also writing down the value of 401(k)’s, private pensions, and public pensions. My guess is that the GOP will try to
lower interest rates“kick the can” so the bubble doesn’t burst until January 2009, when they can blame it on Democrats.ICAMI, as far as mortgages are concerned, here’s a very fine post by Ian Walsh over at FDL Simple Solutions For America #1: Fixing the Mortgage Market.
Sara also had some comments somewhere about using HUD and state governments to administer the solutions.
If anyone has any experience with the Japanese real estate bubble, I would guess there are are lessons we can learn.
Goldman Sachs, the bluest of blue-bloods, is using the Fed’s Discount window. I guess that means I’m now a GS stockholder. I’d like someone watching over the FED as they accept the crap off of GS’ balance sheet.
Suddenly Wall Street became socialist. They wanted a damn handout from the government, because they wanted to be insulated from the consequences of the risks they took. As Attaturk over at FDL said, “Heaven forbid they should have to trade in their Beamers for Saturns.”
Unfortunately, that’s not who’s going to be really hurt by all this. Now that corporate America has decided that we will all be much better off with 401Ks and such, this crap by BSC and all their little chums hurts everyone, teachers, firefighters, nurses, etc. Once again, it will be the middle class that gets screwed while the big boys are looked after by the Fed. As an example, I once received a letter as a party to a class action lawsuit (pertaining to junk bonds sold by First Investors back in the 1980s). The letter told me how pleased I should be that we won, but I was a teeny fish in a big pond. I got nothing. The big players with much bigger holdings received some compensation. To be fair, even they lost a lot, but at least they got something back, unlike the rest of us.
IIRC that phone call happened last summer, so I doubt it. But that’s not to say that Stone wasn’t out to get Spitzer back then, I just don’t think the timing works.
I loved LHP’s timeline on all of this. I think the crucial dates are:
I think BushCo didn’t like the Op-Ed, but I suspect that they were even less happy that Spitzer introduced a bill to do something about it. The Comptroller writes a letter to refute Spitzer’s allegations that doesn’t draw much attention, and the next day the someone leaks to the NYT. If you can’t beat someone in the court of public opinion, smearing ‘em to remove them from that court, is the next best thing.
I hope Sen. Dodd takes Chris Cox (SEC) and Hank Paulson to the woodshed (Can we impeach and convict them?). Also high on my list would be the credit rating agencies who always seem to close the barn door after the horses have run off.
The thing about the 10 dollar price hike is that a, you get what you pay for, so by increasing the price, they increase the value of what they’re buying. And b, everybody gets to make more money because not only do the big wigs at Bear Stearns get more on their holdings, but also all their friends got to get in on the 2 dollar price and make a five fold profit overnight.
Back in August 2007 Jim Kramer (Wall Street’s favorite whore) confirmed (see YouTube link), that everyone on Wall Street knew exactly how close they were to “Armageddon.” You have to wade through the first 1:40, to get to the meltdown, which I think mirrors the terror on Wall Street.
August 2007 YouTube
Kramer whoring;
“Bear Stearns is Fine!” Tues, 3/11/08
There are two updates that I have posted. The latest is a link to a post on this subject that just came up on FDL by one of the presenters at the big conference that Marcy recently attended. “Crisis on Wall Street – Shock Doctrine Opportunity – Notes from Take Back America Panel”
laissz-faire philosphy — free market lovefest, Georgie and his crowd, (Shouldn’t banks should go back to banking…)
unchecked — Bushie, let’s dig in…
short-term greed — fucking capitalism
gambling at the expense of investors — let’s invest Social Secuity into
the market…
bailout — inevitable…
…Bear’s swift end on March 16th was the inevitable consequence of the laissez-faire philosophy that allowed financial services to innovate and spread almost unchecked. This has created a complex, interdependent system prone to conflicts of interest. Fraud has been rampant in the sale of subprime mortgages. Spurred by pay that was geared to short-term gains, bankers and fund managers stand accused of pocketing bonuses with no thought for the longer-term consequences of what they were doing. Their gambling has been fed by the knowledge that, if disaster struck, someone else—borrowers, investors, taxpayers—would end up bearing at least some of the losses” The Economist
I just a comment over at fdl on this. Paulson comes from Goldman Sachs and the idea that he is going to propose significant regulation A) because of his own background and B) because this is the most anti-regulatory Administration in memory is laughable. Paulson and the Bush Administration’s goal is to dump this puppy on the next Democratic President.
There are 4 components to all this:
1. Homeowners should be allowed to convert to fixed rate long term mortgages paying a stupidity premium
2. Mortgage holders should pay a greed penalty and have the value of their mortgages reduced say ~25% but at least this is better than the 5 cents on their leveraged dollars they could expect if things went kerblooey.
3. Hedge funds need strict regulation. They dominate market trading but add nothing to financial markets. The bubbles they foster are destructive of markets in general. They need to be forced to hold on to investments longer. Have to better collateralize their loans to cut back on over leveraging. The capital gains tax should be increased. And profits of hedge fund managers should be taxed as income not capital gains.
4. Derivatives trading should be severely reduced. If financial managers want to gamble, they should go to a casino. Middleman trades should be eliminated.
We are on the edge of an incredibly dangerous precipice, and the average American JoeSixpack has no f*cking clue what’s going on, let alone that we are flirting with a depression (if we aren’t already in one).
The spouse is finally clued in, though, and I thank the stars for the smartasses that helped get him educated with humor before the really painful education begins.
A subprime primer
John Fortune & John Bird on the South Bank show from last October about the subprime crisis
We didn’t get here overnight; I could see this coming back in 2002, when I couldn’t buy a home and ended up building instead. There were no properties to be had since everybody and his brother regardless of credit worthiness could get cheap and easy loans, so strong was the push by the ruling junta for an “ownership society”.
And credit so cheap, as bonddad points out, that they were paying people to take loans.
This money was used to refinance homes, with the equity pulled out and used to buy stuff — it propped up a big portion of the Bush years, and now the bill has come due, all that equity gone and no longer underpinning any of the new mortgages. It took years to get us to this point where it has swallowed what credit wasn’t being eaten up by our warfare.
It’s also the last gasp of Enron’s smartest guys in the room; they propelled the use of derivatives as no other organization could, and far too many companies latched onto them as hedges. Ever read a swap instrument? I have; I remember the attorney I worked for dismissing the tome-sized document as so much boilerplate. But if such an instrument cannot be readily digested by the average Joe — and believe me, many of them couldn’t even with a college degree, allowing peer pressure to move them along with the fashion of taking on derivatives — then we were in way too far over our heads and have been for over a decade.
What we really need is some sort of prep for dealing with the worst; what happens when the shock of the doctrine wears off, and our economy is in utter chaos?
Porsche expects to meet or exceed its sales targets this year — while the Big Three are all trying to figure out how to stop the hemorrhaging of sales.
And pricey bike sales, like Harleys and Ducatis, still strong.
It ain’t Joe Sixpack buying a Cayenne; the JPM/BSC deal didn’t hurt the guys ordering the Ducatis.
Here’s something I wonder about. The Times reported that the Fed is guaranteeing the first $30 billion (now JP Morgan gets the first $1bn and the Fed takes the next $29bn). And, they report that the Fed is going to manage the portfolio. I also remember that the toxic portfolio totaled around $46bn. This isn’t a portfolio of stocks or other tradable assets. It looks like a bunch of retained interests or owned interests in the big shitpile. What on earth does the Fed know about liquidating that junk?
1. Could this be an opening to some kind of homeowner bailout? To the extent the pile is mortgage-backed securities, the Fed might be able to force deals to help homeowners.
2. Exactly how does this guarantee work? Suppose the $46bn could be liquidated for $35bn. Who gets the money?
As usual, you’re nailing it. The opportunities for fraud at the expense of the taxpayers are virtually limitless.
A little reality check… California’s Home prices drop 26% in February… $3,000 a week says the CA Realtor’s Assn…
http://latimesblogs.latimes.co…..-free.html
A friend of mine is a Naval Architect that specializes in the mega yachts. He has told me (and I’ve witnessed a few times) that his work load is inversely proportional to the health of the economy; the worse it gets, the more work he gets.
Even he thinks it’s disgusting, and he comes from money (he actually lives very modestly).
Crashing the economy really isn’t a big problem for these guys; it just separates the entitled from the pretenders.
Well, there’s the answer for those of us who have some money to invest but aren’t in the JPM/BSC class of investors.
Buy medical device, yacht company and lipstick company stocks.
Maybe I should start a fund called “Hips and Lips” — invest in manufacturers of hip replacements and cosmetic companies.
Why the lip stick? To paint all the pigs…?
Heh. Too funny. Waste of good lipstick.
You may have missed my link to the explanation of the “lipstick indicator”; in economic downturns, women may not have the funds to buy a new car or new furniture, but they’ll have enough money to splurge on a lipstick.
Leonard Lauder of Estee Lauder noticed this, although I think the concept predates his tenure as CEO at EL(NYSE); lipstick sales are inverse to the rest of the economy.
So load up on AVP (Avon, 2x market cap of Estee Lauder), and maybe some other consumables stocks that have overlapping markets like PG (Procter & Gamble), CL (Colgate-Palmolive).
Might be signs of the lipstick upturn within the last quarter: ACV (Alberto Culver), FACE (Physicians Formula), REV (Revlon) all swung to a surprise profit or net earnings within the quarter. Guess your women friends have been telling you for a while now that the economy’s down the (lipstick) tubes.
Interesting that the #1 hip replacement hospital is a few miles from here! Private ship building used to be big; now all we need is lipstick and we’re the economic oasis.
I gotta go work on dialysis machines……. I’ll catch up at lunch.
Here’s a nice yacht. Some of these creatures can stay at sea for five years before having to go fill up on gasoline. Wonder if there are any war criminals thinking about this lifestyle? The one I saw on HuffPo last weekend, and can’t find, even had a garden on the top.
Thank the gods of employment I just got a job in the medical (device) industry!
Just try and crash THAT market!
Congratulations on the job. Unfortunately the falling dollar makes it a lot easier for foreign owned companies to buy our’s.
Opto Circuits buys US firm for $68 mn
My guess is that a lot of the manufacturing jobs will now migrate to India.
BTW, IANAST (I am not a stock broker). YMMV. Do your own investment homework with or without a professional you trust.
One of the given reasons for the Fed action is to avoid a panic in the financial system.
It’s impossible for me to tell whether this is really a service to the public. For instance, it would not be a public service if we really should be panicking.
On $2/$10: JPM estimated that the takeover costs of the deal would be about $6B (i.e. about $50 per share). This cost was surely inflated as a negotiating position with the Fed, but if you take it at face value, to JPM it’s only a 15% difference whether they pay $2 or $10 a share. On the other hand, it’s a very large difference to the shareholders. If by raising the price, JPM smooths the transition and ensures the shareholders approve the deal, it’s probably worth it to them in the end.
On shock doctrine: Pelosi and Frank ought to be tag-teaming this to shock-doctrine in reverse. The hazards of bailing out entities that you don’t regulate ought to be clear. If the Fed is going to be the payday-lender-of-last-resort for brokers, it needs the power (and will) to regulate them.
You’re channeling Nouriel Roubini this evening, I see.
Yeah, it’s a very scary toss of the coin here. Should we be panicking — which would likely result in a run on every bank, but would induce real action by legislators? Should we allow this one rescue, in order to prevent a full-blown panic? Agh. What a mess.
Given who’s been right and who’s been wrong about this whole situation for the past two years, I’d be honored if Roubini’s spirit has chosen me as its medium!
One of the personal finance gurus, Dave Ramsey, a Nashville guy, has been saying for years that the stock market will return 10%. Rich people and big companies think they should do a whole lot better than that unlikely result.
This is the rot at the core IMO. As Rayne said @ 19:
… not to mention WS insuring each other’s overvalued “entities” with their own.
One of the enduring legacies of Enron/Ca. “Energy Crisis” is, given the scope (+/- $32b for Ca.) they essentially got away w/it. Bush/Cheney/(Spencer) Abraham all described this thing, in it’s infancy, as … “the free market at work.” They ignored allegations of fraud from both Ca. Sens., AG etc. (Bush never even responded to DiFi’s many requests). Yet, W’ was never held to account at all… zero, zilch.
Given the scope of all this, I’m beginning to think American people are getting what they deserve…. eg. electing this ass hole twice.
I’m also sorry to say that it seems to me dem lawmakers don’t seem to have a clue as to scope, cause, corrective measures… proposed fixes seem to me like throwing a life preserver before the tidal wave hits.
Why are none of the dems making an issue of actions based on “free market economy” and ensuing results? The roadmap of fraud is wide & vast, begging for a voice.
In 2000, before the collapse of Enron, I had several discussions with the hedge department of a Fortune 50 firm while kicking around the idea of some new investments. These guys were among the brightest and best in the industry, spending their days protecting the company against risks like currency and commodities price fluctuations. Some times they were the difference between this manufacturer making a profit and not (think Asian market crisis in ’90’s).
We got onto the topic of Enron and the kinds of new instruments they were offering. These guys just shook their heads and said they just didn’t get it, didn’t understand what Enron was doing — and yet they assumed that Enron must be doing something right.
If these guys with the finest educations in finance and economics and deep experience in the markets cannot see through the smoke of Enron, we cannot reasonably expect the folks that we are electing to office to do better. It’s up to us, to some extent, to educate them when we have the chance, and to look not only at what candidates say, but who their advisers are and what the advisers are saying. It’s up to us as voters to demand a simplification and a return to the fundamentals in order to reduce risk and improve transparency.
Just watch CNBC for a while this week — they don’t have a clue, either, and they’re up to their ears in this stuff.
I view the lack of a plan right now on the part of Dems as reflective of the complexity of the mess, and an acknowledgment that neither the White House nor the Senate as currently configured will allow any changes that help Dems in November — Joe Sixpack is simply going to have to ride this out just as they’ll ride out the war until the assholes are evicted from office.
As one who prefers that darkness stay strictly literary, I’d say multitrillion dollar panics are to be avoided. However, even though I think I support it , reluctantly, this deal was too much of a pastiche to become the operating standard.
One thing about having rules for these rescues in the future might be that we don’t have to be bothered with who Joe Lewis is, or why we’re hearing about him. I’m also struck by the absence, in anything I’ve seen lately, of any executive presence from the old regime at Bear. We know the former CEO Cayne* has done nothing more demanding than play tournament bridge for some time, but it seems as though there’s more to the Bear situation than what JPMC should be expected to answer, going back to the reasons for those first panicked 3am phone calls. Where is Alan Schwartz?
And this relates to the potential shareholder suits, which seem to operate on the assumption that the deal is like routine mergers, when in fact if Bear’s balance sheet was really so locked up and deteriorated that it was failing in a kind of bank run —and keep in mind that if $30 billion would have done it then the Fed would probably have just found a primary borrower to relend to Bear— then the action including purchase or transfer to JPMC is more akin to what the FDIC does when a depository commercial bank fails.
To an approximation based on my rusty memory, FDIC takes the bank and a receiver is found to continue run-off operations. I believe that once all previous business is disposed of, then the receiver has first refusal on anything that is left. Shareholders get pennies, zip, something like that, in keeping with the fact that common stock is the junior securities class and is the first to absorb losses, something which I would have expected pension fund managers to know (though I bet the other shareholders suing BSC management for concealment of the firm’s true condition turn out to have a case).
But analogous all as this is, it’s certainly ad hoc as well, so if Congress wants to look into the making of rules over IB bailouts, please do. They will be needed.
—–
* Update: It appears that Cayne is also part of Lewis’s efforts to get a higher takeout price. He would be, given how many of those $2 dance tickets he’s left with.
the fed is a private bank.. many folks are under the impression it is run by the gov’t.. it isn’t and it doesn’t really give a flying f about the ordinary person, only in so far as it can continue in its deceptive ways…
Here’s a wrap-up on Bear Stearns from ThinkProgress.
Funny, i’d forgot about the Everquest matter, but that sordid tale was what singled Bear out in my mind as a cut or two below the average big investment house. So much garbage has rushed by since ‘06 …
I could write for hours and days on this topic.
Basically, we may have invented financial tools that are beyond our ability to fully understand and control.
Add to that a culture in which people seem to get away with fraud, theft, and financially ruinous behavior without ever incurring personal inconvenience, and it’s not hard to predict that problems will occur.
Since the 1970s, the US has transitioned into a ’services sector’. Many of those services were related to home sales, bank loans, and debt service. That’s what happens when the cultural messages are all about ‘personal responsibility’, while the action taking place is a bunch of hogs slurping at the public trough.
Not sustainable.
Futureshock.
You’ve just described it. We are up to our ears in futureshock and we can’t see it.
He may have been psychotic, but the Unabomber did have a point under all that weirdness, that technology could get ahead of us. If we didn’t have the kind of technology we have today, could many of the complex hedge instruments and derivatives be used? I don’t personally think so; we count on the lack of human intervention and involvement to make complicated and interdependent calculations that these instruments demand.
OT — Clear Channel the buzz today, buyout by private equity firm affected by the credit crisis. Amazing the crisis is now impacting the excessively consolidated media market.
Bingo.
Machines are great, but things are happening on a scale that’s eclipsed our ability to comprehend. And if this is what occurs with money, then see my next comment…
OT-It looks like one of the ‘accomplishments’ cheney achieved on his ME trip was to get Arab ‘friends’ to snub the Arab conference in Syria. Either heads of state have pulled out or are sending low level representatives. Hmmmmm…
http://www.sauditimes.com/
Wonder if the change in attendees has anything to do with this?
I wondered the same thing
There are so many things connecting throughout the whole region — it’s very worrisome. Well, it worries us. Some people seem to see opportunities. That’s what’s really worrisome.
Too early in the day for such grim news.
As someone who spent much of childhood ‘downwind’ from the Hanford Nuclear Reservation, it’s impossible not to view Cheney, the Saudis, the Russian Mafia, the entire Bu$hCo Clown Association, and assorted ‘private interests’ selling nukes and ’security’ on the black market as the lowest forms of human stupidity and predation ever born.
A cell is damaged by nuclear fallout.
It may take five years, or ten years, or twenty years, but the damage to the DNA inside that cell is passed along as the cell divides and generates subsequent cells. The mutations accumulate; sooner or later, they manifest as disease, most frequently as forms of cancer. It happens to a prince just as readily as it happens to a pauper.
What is complicated here?
These asshats are NOT ‘defending’ jack sh*t — they are committing suicide. No matter how much lipstick you put on that pig, it boils down to suicide.
They can brandish their egos and they can pretend they’ll find some magical solution to nuclear fallout, but there are limits to what living organisms can tolerate. It’s simply a matter of time.
These people have lost their collective minds.
They may as well seek the Shroud of Turin and pray to painted rocks, for all the good this effort is likely to produce.
But hey, I suppose if you believe the fictions of Wall Street, it must be easy to believe the fiction that you could be safe from nuclear fallout.
I can almost hear the Think Tanks braying, “Step right up folks, git yer favorite delusions right here…”
Too early in the day for this level of stupidity.
My parents got part of my name right, initials JP same as Morgan the banker as a namesake, though two relatives also had those first initials. I liked the article excerpted from the Sunday NYT in which GMorgenson discussed the private trader insurance entities maybe being BofA and JPMChase, though it is only guesswork of hers; her point was that likely JPMC may have been a holder of the Stearns’ favored products’ insurance, so buying BearS saved some of the payout; same for BofA with Countrywide; I think MadDog posted the link, on the other thread. I have a dilettante’s view of the market, though, as the past several years seemed to have been a headlong plunge over home refinancing ineluctably drawn to the equity people perceived in their houses, given the rapid taper of the internet boom cycle eight years ago, after many middle class folks had whetted appetites that creativity had arrived and was about to remunerate them, but it has been a more rarified assemblage of profiteers in the current crunch. The Republicans have figured a way to keep stocks healthy, but still are nonplussed by the housing component of that equilibrium.
Regarding the popKultcha reference in the original post, above, we have heard that Wilson Pickett spent a while studying the incredible currents out the Gate, which I thought a better occupation than the flirtation with the economy size muscleCar, but the related musicology would be for an intranet thread exclusively.
You have the opposite of the old tune, “My Name is Morgan, but it Ain’t J. P.” They have some old folkies playing it on youtube, but the best version was a calypso-themed one by Blind Blake.
we have heard that Wilson Pickett spent a while studying the incredible currents out the Gate
Thought that was Otis Redding. Whichever, his spirit is going to have a lot of company soon …
Apologies to OtisRedding, WilsonP, that posted from work hastily yesterday.
Apropos the hideous interconnection of all things financial:
Porsche, Sprint Unsettle Banks With Rush for Credit
I’ve been trying to figure out why the media has been focusing on the Adjustable rate loans as if that is the central feature of the mortgage crises. Again, I am absolutely amazed that so many people have been stifled and voices are not being heard. The ARM issue is the only one making the media because the buyer is more culpable. Everytime I post on this I have folks assuming that my loan was an ARM and that I didn’t read the contract. Now I get it, the ARM issue is being used, once again, as a bright shiney object so that the illegal behavior of these mortgage servicers is completely unreported.
I didn’t have an ARM. I had a 30 year fixed rate loan. No matter what advice people try to give me I have had a very time consuming and difficult time getting ANY lawywer willing to do a boat load of work up front to sue a big corporate bunch of lawyers behind a corporation like HOmecomings financial (millions in financing for Katrina victims-how kind!!) and GMAC. I live in Nebraska. The attorney general fined them, but it did nothing for me, and I have no idea how much the fine was. They broke many federal laws, tantamount to stealing. The only reason I am still in my home is because I am not of your average education level. They were going after minorities, single women and the elderly.
The laws they broke…and I know…I have two lawyers who could care less about my case. They are sort of waiting to see what happens. They aren’t too keen on suing the company outright because it means a lot of work with no pay until later and no guarantee that they will get punitive damages.
1) no communication after my foreclosure. NO calls, faxes, or certified mail responded to. All document. State attorney general did finally step in but that took 3 months and it was 1 week for foreclosure sale date when I finally got a response from the company.
2) property inspections fees, monthly varying in price from 35 to 100$ a month.]
3) Not applying my payments accurately. Hauled me into court twice for nonpayment. I was able to prove my payments had been made timely. Second time in court the judge finally threatened punitive damages.
4) There is a link between these foreclosure scams and the lack of communication. This forces the homeowner to pay 1000$ to get the mortgage company to discuss the loan and make new arrangements.
5) messing with escrow account and paying taxes. They mortgage servicers are notorious for not paying the taxes or insurance payments on the home and then refusing to take responsibility. THe homeowner has often been evicted long before they figure out what has happened.
5) not responding to lawyer requests for payment information in a timely manner. My lawyer has requested this information twice. Honestly, these lawywers in nebraska seem to have no clue of how to handle the brazen nature of this company.
The news story behind all of this is brazenly illegal behavior and the fact that Bushco did nothing to hold these companies accountable. Millions have already lost their homes, and their credit and credibility. Once you have lost your credit rating it’s really hard to get anyone to believe what you are saying when you tell the tale that your payment just didn’t show up on your bill or that they have a 300 dollar charge for escrow shortage and you have no clue how it got there.
Like the rapist who chooses the prostitute or the drunk girl at the party for his victim this despicable bunch made the same vicious choices. And it worked too well in america. They got rich and the scoundrels perpetrating this scheme sold out years ago. They are long gone and all the richer for it.
Sorry to hear of your troubles. I think you are exactly right that the reporting on this subject has been ridiculously skewed to paint the homeowners as the culpable party. Again, I think this gets to the real heart of the story… the federal government prevented enforcement of lending laws by states as Spitzer wrote in his Op-Ed. So you not only have a greedy out-of-control financial industry playing a massive shell game and selling worthless paper all over the planet, but you have BushCo aiding and abetting the process.
Your story also reminds me of the kind of shenanigans that the credit card companies got into as they were deregulated. Increasing fees and interest rates arbitrarily, unresponsiveness to questions about people’s bills, and threats of collection agencies if people didn’t shut up and pay. A relative of mine had to declare bankruptcy because a credit card company played hardball over a disputed bill. He had no idea how to fight back and no resources to hire a lawyer, until he finally had to go through bankrupcty.
Safe to say, I am not a fan of deregulation or “self-regulating” markets.
They’re not gone. I just took out a loan with GMAC/Homecomings and made the first payment this month. It’s a 30 year loan too, and I got a great rate (5.675 on a non-owner occupied). I’ll watch out, thanks. I see they paid the insurance…now I’m freaking…
What we forgot about the lessons of the great depression.
Commercial banks are important to the health of the economy.
Commercial banks should not be investment banks. That’s why Glass-Steagall was enacted after the crash destroyed about 1/5 of the banks in the US.
It was undone in the late 1990’s.
Deja vu all over again. Learn more at the TIMELINE of the link below.
http://www.pbs.org/wgbh/pages/…..emise.html
OT
More on the shit pile this morning in the NYT…
Equity lenders are in trouble, because if a home is sold under foreclosure only the primary lender is reimbursed. Secondary lenders (the “use your house as an ATM crowd”) get nothing until the primary lenders are paid in full.
And, surprise surprise, some of the shit pile has been brought to you by… you guessed it, shady Enron-like accounting. Another feather in the cap of the self-regulating marketeers…
And for an added bonus, OT NYT article on a shady government contractor sending old ammunition to Afghanistan and laughing all the way to the bank… Government incompetence? corruption? Why choose, lets pick both. We cannot rid ourselves of BushCo fast enough…
Here is a clip about a protest in New York having to do with the Bear Stearns bailout on my all time favorite radio show Democracy Now. Amy Goodman digs into the issues like nobody I know.
March 26, 2008
Bearstearnsweb
Homeowners Plan Demonstration at NYC Offices of Bear Stearns, JPMorgan Chase to Protest Government Bailout
Hundreds of homeowners are planning a demonstration today in Manhattan in front of the corporate offices of Bear Stearns and JPMorgan Chase to protest the “taxpayer bailout…and refusal of the government and Federal Reserve to provide real solutions for the millions of homeowners at risk of foreclosure.” We speak with Bruce Marks, the founder of the Neighborhood Assistance Corporation of America that is organizing the demonstration. [includes rush transcript]
http://www.democracynow.org/20…..yc_offices
Loo hoo,
they were fine until my ex suddenly quit paying child support after 10 years and my husband a union electrician lost his job. I suddenly was down 2k in a month, auto pays cost me a fortune because of course i didn’t know my ex was going to suddenly stop making his 1k payment. They foreclosed as soon as I was 60 days late. I tried to call and make arrangements but the only arrangements they would make were to finance my two late payments at 21% interest over the next 5 months which increased my payment by 500. At this point my ex was awol, and there was no way I could pay an increase. I could have started payment from that point and kept up after that but they sent all my payments back and refused communication completely. This has all been documented. I did not hear from them but for form letter after form letter begging me to contact them and work out a deal. But they never answered the phone or returned a call to me. The key is to not fall behind for any reason, and then I would encourage you to get out as soon as you can. There are posts on this company not reporting payments and then foreclosing before the mistakes can be worked out. Make sure that all payments are posted and watch your escrow account.
It blows my mind that they can operate as they have and not be stopped. They’ve been sued, several class action law suits, but it didn’t stop them. They rattle the hell out of the lawyers in my town.
I just re-read the loan package, and all seems legit to me, but I’ll keep a good watch on the escrow account. Insurance and taxes have been paid. Thanks.
Phred,
It really has been an example of the rich literally feeding off the poor.I don’t think it gets more vicious than that.
Agreed. They (credit card companies and mortgage lenders) have created loopholes that they exploit to good effect (for their profit margins, not the borrowers). One minor infraction, and they go to town soaking the borrowers literally for all their worth. This sort of thing used to be against the law.
It is also a reflection of what happens when capital is divorced from local economies. In the small town I grew up in, the local banker had an incentive to work with farmers and homeowners when problems cropped up. It was to the bank’s advantage to not create a crisis in the local economy. Now that multi-national banks are passing paper that has been bundled in ways to obscure what the assets and liabilities are the incentives to be good corporate citizens are gone. There is so much broken with the underlying assumptions of the global economy that is directly tied to farming, energy, environmental, and political infrastructure that it is imperative that we really start to rethink how we do business on a global scale.
My contract was fine. None of this stuff was in it. Google “Homecomings financial and insurance payments” and see what you get. I think they are known for making the payments and then not making them suddenly, leaving you in arrears with the insurance company. Look for posts on this, if you want more info. It is my understanding that this is one area where they have been shady.
O/T: Alert to Mary, Ishmael, and others interested in the Khadr case: the SCC heard the Canadian connection to this case yesterday and apparently gave the Crown a hard time, not that the Crown is moving much:
The Court has reserved judgement, but I really don’t see how they can let this go.
PS: Adviser tells me I’m misusing Crown there, should just have referred to government. Sorry. Ishmael? When are they the Crown and not the Crown?
Good news a new class action lawsuit has begun against homecomings.
I have to say that the first one out of new york had me a bit curious. Could homecomings hire a company to collect the info and then screw it up to waste time and sabatoge the cases from going forward… or am I just too cynical. You lawyers might be able to answer that. I was very suspicious of the first company who took up a big law suit against them because they just didn’t seem to follow through very well. I believe the foreclosure specialist companies that folks hire in desperation to “prevent foreclosure” were a scam owned by the industry, creating the need for these companies by illegally refusing communication with people once they were in foreclosure. Then these companies sprung up to communicate with these servicers to negotiate a payment plan.
When they went to congress to testify these big industry spokemen made a big deal of the statistic that less than 50% of the people in foreclosure called their servicer to work out the problem. At the time I noted my suspicions about this statistic because they had not answered my calls or faxes. Then when you add the scam of these foreclosure specialist that charge 1000k “to talk to your lender for you”. Am I wearing my tin hat to tightly to wonder if these law suit couldn’t be set up to basically get people sending their info, copying, faxing and interacting with lawywer filing lawsuits that just fall apart in the end?? Is that illegal, too cynical.
Here’s the link to the new class action lawsuit against homecomings.
http://www.homecomingsfinancia…../about.php
One small note on foreclosings I’ve learned from calculatedrisk (IANAL, don’t take this as other than advice to look into): the original mortgage on a home is, in most states, “non-recourse”. That is, they can take the house and ruin your credit, but no more. However, if you refinance, the loan often (depending on the state) becomes a “recourse” loan–meaning not only can they take the house, they can go after your other assets and income if the foreclosure sale fails to net enough to satisfy the outstanding debt.
Just one thing to think about before refinancing.
As is mentioned on housing blogs, the biggest problem is called affordability. Too many people in houses that are priced beyond their means. The exotic financing options all were just teasers to get people in over their heads and get commissions. The mortgage bankers were all too happy to lend 600,000 to somebody who makes 65 grand a year. The house prices in many markets are way above the means for most people who live in them. The prices falling the way they are is the result of unwinding the mess. So now what.
If we choose to reduce the mortgage debt on people and rearrange the loan terms to fixed loans then you have forced the housing market lower and screw all of us 30 year fixed people. At the same time the foreclosure sales will force the market down anyway. I feel bad for people loosing their homes but you can’t screw everybody else. I don’t feel bad for any flippers or people who took out no downpayment loans. Or for the banks that did this. My cousin is about to loose their house in Lake Forest, CA and what will they do?
If you do the math with a 30year fixed 20% down loan with a 28 % income payment requirement with a an average income of 60K you get payments of 1400 a month. At a 5.75 loan this average person can only afford a house loan of around 233 K. In a lot of markets house prices have a long way down to get there.
Correct. Because that mortgage banker made his/her income based on percent of loan amount; the bigger the loan, the fatter the banker pockets.
Where I live, the sprawl is unbelievable and the environment seriously degraded in large part because of the go-go housing boom. My state and local governments have spent millions on ‘housing plans’ intended to implement more affordable, more environmentally sustainable housing that would cost about 20 – 35% less per month for homeowners. However, the homebuilders politically sabotaged those plans. Builders make a lot more from a McMansion than they’ll make from constructing an nicely designed little mixed-use housing project.
It all boils down to lack of leadership at many levels of government, but primarily at the federal level because all the road, agriculture, economic policies are all tied in one way or another to housing. And if I were an oil magnate, I’d love sprawl — it generates millions of auto trips daily.
And wavpeac, keep at it. I don’t doubt for an instant that the kinds of incompetent, as well as criminal conduct you mention absolutely occurs. Not everyone understands their job well enough to do it accurately; others take advantage of confused buyers (and dumb realtors).
No, this is not the problem. Follow my link on homecomings financial. Google “Homecomings financial and loan fraud” and you will find that the biggest problem is illegal behavior on the part of the servicers. They are violating federal banking laws left and right. This is my whole point. Stop blaming the people who took out the mortgages and start looking at the behaviors of the mortgage servicers.
They are not applying payments, they are forcing insurance, they are messing with escrow accounts, they are violating laws. And there is no one to stop them. When you want to focus on the borrower and blamning the victim you completely switch the focus in a way that benefits the corporate. Before you tell me about irresponsible borrowers, please follow my lead and look into the behaviors I have reported here. It is wide spread, not being reported in the media and in the end we will all end up paying for it while they get rich. (corporate owners)
I agree in respect to the bad lending practices. And that really isn’t the point. I used to write software for one of the bad guys ( now bankrupt and gone ) The thing is that a 3 bedroom 1.5 bath 1400 sq ft house for 600,000 is ridiculous. And yes the brokers, appraisers, title insureres, and lenders are very dirty and have a lot to hide. But the bubble in prices and affordability ( not all communities ) is based upon Greenspan and keeping intrest rates down for so long that the prices went up as the mortgage rates went down. Then come the exotic loans and viola huge bubble. The fed started cranking rates up again and kaboom there goes the bubble.
Please realize I am not denigrating your perspective. I am commenting on the general whole which prices most people out of any kind of realistic mortgage, and those that took the exotics a going to be in danger.
The only other thing about the Feds panic moves ( Bernake is supposed to be a student of the 1930s and beleives the Fed of the time didn’t do enough ) is the lowered interest rates mean that the LIBOR and CMT indexed ARMS won’t necessarily break the loan holders in short run. There payment may actually go down a little. Most of those loan types reset again and again over time and they will get smacked as the Fed raises rates to fight inflation. The problem of course is these people are sitting on properties where if the sell they can’t close the mortage.
Sorry, I live in omaha nebraska where housing prices are very reasonable. We aren’t seeing that kind of problem here. I know it is an issue elsewhere and that this housing bubble and the crash that will follow is what you are referring to. I know that the market prices cannot be maintained as they are and will eventually have to regulate.
It just isn’t the issue where I live.
But at least you got Bo Pellini back and maybe a return to normalcy on the gridiron.
Well, and technically we have Osborn back as the big head cheese right now. (athletic director) That makes nebraskans happy. They had their first spring practice yesterday, and the news folks were drooling as they waited to interview the great BO, which IS only a B short of T.O. (the great Os)but I am tellin ya, it feels more like december in the land of the corn…at least today.
Great job in blogger world!! bmaz. You have kept us all hoppin’ with good topics and lively dialogue. Nice. I usually go through withdrawals when E.W is out of town.