Daily Digest 10/23 - Drowning or Waiving, Laurence Kotlikoff on the Fed, Foreclosure Fairy Dust
- Fannie and Freddie May Need Infusion
- Drowning Or Waiving
- Problem For Banks: Due Process
- Foreclosure Fairy Dust
- Lawrence Kotlikoff - The Fed And Treasury's Actions Are Equivalent To Child Abuse
- Thank G20 It's Friday!
- Screwflation Nation
- Oil Sands Effort Turns on a Fight Over a Road
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Fannie and Freddie May Need Infusion (jdargis)
The Treasury Department has spent $135 billion on Fannie and Freddie since they were seized by the government in 2008, to cover their losses on soured mortgage loans. The government is propping up the two companies to make sure that money remains available for mortgage loans. Even under the worst case detailed on Thursday by the housing finance agency, the pace of new cash infusions would decline sharply.
Drowning Or Waiving (jdargis)
Since lenders bear the brunt of the higher losses that foreclosure entails, their general reluctance to modify the balance of mortgage loans is puzzling. If mortgages could be written down to a value above the likely foreclosure sale price, that would generate benefits for both creditor and borrower. Yet a report earlier this year into the government’s foreclosure-prevention programme showed that principal was forgiven in only 2% of cases. So what is preventing a better outcome?
Problem For Banks: Due Process (jdargis)
During the ensuing conference call Tuesday morning, there was the requisite chest-thumping from Brian Moynihan, the chief executive, and Chuck Noski, the chief financial officer. But there was also something else: tough talk about two big legal problems the bank faces as a result of the subprime bubble. Not surprising, it was the latter that caught my attention.
Foreclosure Fairy Dust (jdargis)
The foreclosure crisis was brought on by bluffing and corner-cutting banks (or foreclosure mills subcontracting for those banks) that had too many defaults to process at once. Might a similar bluffing and corner-cutting be the hallmark of Bank of America's Evelyn Wood-style review? One can't be certain, but three clues suggest the answer is "yes."
Kotlikoff says: "This massive Ponzi scheme is turning the American Dream into the American Nightmare" adding that what the Fed is doing now is equivalent to "child abuse" and adding "If things continue as we adults have planned, our nation’s debt, measured as a share of gross domestic product, will reach Greek levels just when the grandkids start heading to work. At that point, simply stabilizing the debt-to-GDP ratio will require raising taxes by 50 percent, thereby lowering the grandkids’ living standard from 74 to 61."
Thank G20 It's Friday! (Ilene)
Apparently, Tim was able to swing enough cast members to pull a G7 Meeting this morning, apart from the G20. Who was conspicuously left out of the G7 (US, Japan, the UK, Germany, France, Italy and Canada)? Why China, of course. Poor China was sent off to get some water while Tim and the other ministers talked behind their backs. The United States and European Union accuse China of keeping its Yuan grossly undervalued to benefit exporters. Beijing counters that Washington’s loose monetary policy is swamping emerging markets with destabilising capital inflows, as investors chase higher yields than they can secure from the dollar.
Screwflation Nation (Ilene)
I know, I promised last week I would get off this topic after a week of posts on the subject but, despite my best efforts, I had enough brain cells remaining after the weekend to notice that Wednesday's 1% move up in the market was coming against a 2% drop in the Dollar. That's why the S&P, priced in Euros yesterday, shows a 0.6% LOSS, not a 1% gain. The futures are on fire Thursday morning because Timmy (I can name him now) said (and now I am the one falling off my chair laughing) "the major currencies, which are roughly in alignment now." Alignment? If by alignment you mean in a straight line going up with the dollar crushed at the bottom - bullseye Mr. Secretary!
National environmental groups and climate change activists are supporting their efforts, seeing a broader opportunity to stall development of Canada’s oil sands, which they denounce as a dirty source of energy.
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