Financial Meltdown

Look what Santa Obama left for failed fatcats

Hey what was that about checking "who's naughty and who's nice"

Seems twas the night before Christmas, and all through DC,

Santa Obama decided to leave a blank check for failed mortgage firms

Paid for by you and me  

Yep. See the Washington Post for the gory details

The Obama administration pledged Thursday to provide unlimited financial assistance to mortgage giants Fannie Mae and Freddie Mac, an eleventh-hour move that allows the government to exceed the current $400 billion cap on emergency aid without seeking permission from a bailout-weary Congress.

The Christmas Eve announcement by the Treasury Department means that it can continue to run the companies, which were seized last year, as arms of the government for the rest of President Obama's current term.

But even as the administration was making this open-ended financial commitment, Fannie Mae and Freddie Mac disclosed that they had received approval from their federal regulator to pay $42 million in Wall Street-style compensation packages to 12 top executives for 2009.

The compensation packages, including up to $6 million each to Fannie Mae and Freddie Mac's chief executives, come amid an ongoing public debate about lavish payments to executives at banks and other financial firms that have received taxpayer aid. But while many firms on Wall Street have repaid the assistance, there is no prospect that Fannie Mae and Freddie Mac will do so.

Where to start?

  • the questionable constituitionality of making a monetary committment in the absence of congressional authorization. Jeez, where I went to law school my con law class taught me the executive could only spend money appropriated by Congress. Has the Constitution been amended since then to enable the Treasury to appropriate their own funds?
  • The fact that over a year after the collapse of the two GSE's neither Treasury Secretary Geithner nor Senate Banking Committee chairman Dodd have any inkling as to an exit strategy for these failed firms
  • That after making a huge brouhaha over the AIG bonuses that the Feds plan to approve equally large bonuses to executives of firms which are also failing to earn any money
  •  The fact that $400 Billion of taxpayers subsidies are not enough, and that these firms appear to be well on the way to becoming perpetual money pits for the taxpayers?

Help me out here. We are supposed to believe that universal health care is going to be deficit neutral when that opinion is coming from the same people who told us everything was hunky dory with Fannie Mae 


But while Dodd, the chairman of the Senate Banking Committee, insisted that the firms known as Fannie Mae and Freddie Mac were “in sound situation” and “good shape,” he also ripped the administration and the Federal Reserve Bank........ 

Dodd also warned the television talk show’s host that to suggest Fannie Mae and Freddie Mac were “in major trouble is not accurate.”

 Only off by what, $400 Billion...and counting...Chris.....Heckuva job you're doing fixing those banks. Going to see a reform package in this Congress,,,,,hey, it's only 15 months after the meltdown, why rush?.....maybe it will be chock full of goodies for ACORN like what Fan/Fred execs got this Christmas.

A modest proposal for our "leaders" in DC. How about fixing the financial mess before you decide to play doctor for the whole country.


Brands we'll miss (well, maybe some)

Yesterday I saw a list of "Ten Brands likely to disappear in 2010"

It made me think there's one they missed.

They think Blockbuster is done for.  Perhaps the brilliant leadership of board member Jackie Clegg Dodd will be remembered fondly when they file for liquidation. She's been well compensated for what she hasn't done to keep this firm afloat.

And the experts think Fannie Mae and Freddie Mac will cease the fiction of private ownership in 2010. Jeez, how could that happen?  Weren't they sound? Weren't  they great friends of Senator Dodd?  

Yep, there is one brand they missed. Rasmussen tonight found that Rob Simmons is leading Chris Dodd by 13 points! 

Chris, there's a phone call for you.

 Senator Chris Dodd (D-CT ...

Something about where to put the fork

Desperate Dodd digs out of depression

Chris Dodd is desperate. And he had yet another bad day in CT yesterday.

Evidnetly , having wasted 2009 on the health care reform quagmire, some pollsters and focus groups must have screamed at him that what CT residents care about is the tsunami of pink slips.  So he proposes a "jobs program"

EAST HARTFORD - U.S. Sen. Christopher Dodd said Monday that he will urge Congress and the Obama Administration to direct as much as $125 billion in unused and repaid federal bailout money to projects that benefit small businesses and entrepreneurs, to foster a "21st-century boom." 

I'm not sure given the snowballing national debt that there isn't an absolute necessity to use TARP repayments to pay back federal borrowing. Still, this has to be a better idea than what Dodd originally wanted to do with TARP repayments, which was to subsidize "affordable housing " advocates, aka ACORN.  

No wonder things are in the mess they are in. We have the economic agenda of "The Producers" at work!


And Dodd's press op backfired when one of the success story small businessmen promptly announced that notwithstanding Dodd's shower of love, he was a strong supporter of Rob Simmons,

When Dodd assumed control of the Senate Banking Committee total American payroll employment was about 136-137 million. After four years at the helm of this key economic policy organ Dodd has succeeded in causing the net loss of over 6 million jobs.

America started losing jobs in January 2008, shortly after Dodd abandoned his Senate duties to relocate to Iowa for a disasterous Presidential campaign.  We have lost jobs for 23 consecutive months.  And during much of this time Dodd was vacationing in Ireland or ignoring his Banking committee to run the Health Care Committee.

Now Dodd notices unemployment is a problem? Please.

There is no doubt Dodd is the worst Senate Banking Committee chairman since Peter Norbeck in 1930. None.




Chris Dodd abandons Ted Kennedy imitation; stays on his own sinking ship

know the story. The Titanic ...

A few weeks ago, Chris Dodd was eager to take over the official chairmanship of the Senate Health, Education Labor and Pensions Committee as a tribute to his good friend Ted Kennedy, so as to continue Ted's life work of bringing socialized medicine to the United States.

Tonight, Dodd decided to stay with the sinking ship he's already been piloting, the Senate Banking Committee 

This is quite a surprise, since the conventional wisdom just days ago was the Dodd would benefit politically from quitting the Committee responsible for the 2008 Financial Meltdown and going to the committee that is writing the Ted Kennedy Memorial Health Care bill. (not that anyone can figure out exactly what it says, anyway)

So what happened?

Maybe Dodd decided that being blamed for only one sinking ship was enough, and once Obamacare sank it would be wise to be out of the line of sight when folks went looking for scapegoats.

What also happened is one of Dodd's Republican opponents, Sam Caligiuri,  has been hammering Dodd for trying to run two committees at once, and failing at both jobs. 

I  am calling on Senator Dodd to decline the position of the HELP Committee Chairman, if it is offered to him. He should be finishing the job he has barely started of fixing the financial sector problems that got us into this economic disaster in the first place, and not spending his time promoting ill advised health care legislation.

Guess Mr. Dodd couldn;t conjure up a coherent response to Senator Caligiuri's challenge. 

Of course, there's been no progress on reforming the financial regulatory system all year, because Dodd was out pretending to be Teddy Kennedy. Now Dodd returns to a reform effort in tatters. , as nothing has been done in months to advance the complex issue.

Hey, it's not like we didn;t have a financial meltdown recently or anything that would warrant making this a priority.

Well, let's give Dodd credit.  He's staying on the same sinking ship he's already captained. After all, Captain Smith is treated more kindly by history than Bruce Ismay.   


Hey, I thought collapsing home prices caused the recession?

We've been told that the cause of the Great Recession was plummetting home values which rendered financial institutions that lent on this collateral illiquid or insolvent. 

Guess now the value of homes isn't that big a problem anymore. Here's a little-known feature tucked into the Cap & Trade debacle which is guaranteed to cost  virtually every American time and money

The bill forces sellers to have an energy inspection prior to being able to sell their home. Windows, appliances and insulation will have to be inspected and approved by a government inspector and modifications would have to be made for compliance before you can close the sale.

Basically, you won't be able to sell until you go through the expense of bringing your house up to the new code. This will cost a prohibitive amount in many cases. For example, let's say that you own an older house which you bought in 2003 for $250,000 and you now need to sell. Not only has the value fallen to or below the level of the mortgage due the the drop in prices, but you are now faced with re-insulating the entire house, installing new windows, and changing the HVAC & other appliances. The total cost for this type of renovation might easily come to well over 10% of the house's value.

I'm sure this is going to reduce the toxic asset problem all the TARP banks have with underwater mortgages, not.  How many hundreds of thousands of homes will  prove too expensive to retrofit and be simply abandoned upon vacancy?  Bailout II for those banks---green style?

And will ACORN hire all these new "government inspectors"?...hey these will be "green jobs"!

I have a rhetorical question. Is there anything that the Obama Administration doesn't want to regulate?


This week's reminder

Another week, another wave of bank failures....

Regulators shut 5 banks; 45 failures this year

and more to come....

The number of banks on the FDIC's list of problem institutions leaped to 305 in the first quarter -- the highest number since 1994 during the savings and loan crisis -- from 252 in the fourth quarter. The combined assets of those banks rose to $220 billion from $159 billion.

Didn't Chris Dodd say this wasn't going to happen

Senate Banking Committee Chairman Chris Dodd (D-Conn.) on Monday said he does not expect “many more” banks to fail, in the wake of last week’s implosion of IndyMac Bancorp.

After what Chris Dodd has done with our financial system, why in Wicca's name would anyone leave him in charge of reforming health care?


A bit late for outrage, Senator Dodd

The Hartford Courant posted this, indicating Senator Dodd is losing his cool 

When I pick up the morning newspaper and I read the first headline that "Fault Lines Emerge and Industry Groups Blast Plan to Create Consumer Agency," what planet are you living on?'' Dodd said.

"The very people who created the damn mess are the ones now arguing that consumers ought not to be protected.  They're the people who paid this price.  And the idea that you're going to first attack the very clients and customers who depend on you every day is not the place to begin. I am somewhat upset when I see those kind of remarks."

Four words Chris; Too Little. Too Late.

Maybe back in the day when you were "the Banker's Candidate" you might have wanted to look out for consumers


Remember when you hauled your buddies from Countrywide before your Committee to discuss how they were plundering working people with subprime lending...

Well, it was 2007, and you were running for President, and so you did pretty much....nothing

Senator Christopher J. Dodd, Democrat of Connecticut and the chairman of the banking committee, said he did not know if new legislation was necessary, saying regulators could addresses most excesses under existing laws.


Guess that was "defending Connecticut's middle class" NOT


Here's what Rutgers Professor Ross Baker said of Dodd's "leadership" during the financial crisis



Critics are seizing on that now, saying Dodd should have been paying more attention to red flags in the economy.

"He wasn't asleep at the switch," Baker said. "He wasn't even at the switch."

Chris, good luck pretending you didn't do your part to create the mess.  We're ready to put you on the curb first chance we get.

The brilliance of Nobel laureate Paul Krugman

I chime in with Megan McArdle (H/T)

Wow.  Just . . . wow.  .Paul Krugman, circa 2002

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble. (emphasis added)

My word, was this ever nonsense on steroids.

I can assure you that the people actually involved in real estate finance out in the hinterland in the early '00's would have explained quite concisely the risks in "bubbling" real estate---since Mr. Krugman obviously ignored the popped bubble circa 1989-1990. But we aren't Ivy League eggheads and we weren't asked.

Let's deconstruct the impact of this remarkable paragraph

A) It was easy for Paul Krugman to identify the real estate bubble in 2006 since it was exactly what he lobbied for in 2002.

Worst still, you spent the second Bush term bashing him for presiding over policies you endorsed. 

B) Krugman often scoffed that the only tool Republicans ever want to use is cutting marginal tax rates. Look in the mirror, Paul.  Everytime the economy hits the least bit of trouble, you immediately demand the fire hose of stimulus --either monetary or fiscal or both--be turned on.  It' a Johnny-one-note approach.

C) The solution to the popped Nasdaq bubble was the real estate bubble. Now the solution to the popped real estate bubble is the federal budget bubble. When the Chinese stop lending to us. are we going to find another bubble to blow up?  What is this--Bazooka economics?

There's always a crisis in capitalism for Paul, and there's always a bubble to fix it.  Should the guys in Oslo do a recount about that award about now? 

Another reminder

Regulators seize Florida's BankUnited FSB

BankUnited's failure marks 34th bank to close so far this year, will cost FDIC $4.9 billion

WASHINGTON (AP) -- Regulators on Thursday shut down BankUnited FSB, a struggling Florida thrift whose closure is expected to cost the Federal Deposit Insurance Corp. $4.9 billion.

The failure of the Coral Gables, Fla.-based bank represents the second-largest hit to the FDIC's insurance fund so far -- the costliest was last year's seizure of California lender IndyMac, on which the FDIC is estimated to lose $10.7 billion.

BankUnited FSB is the 34th federally insured institution to be closed this year, and the biggest. The FDIC on Thursday took control of the bank, which called itself Florida's largest banking institution with about $13 billion in assets as of May 2

Hey, my Senator said this wasn;t supposed to happen!

Dodd does not expect ‘many more’ banks to fail

Senate Banking Committee Chairman Chris Dodd (D-Conn.) on Monday said he does not expect “many more” banks to fail, in the wake of last week’s implosion of IndyMac Bancorp.

Dodd, interviewed on CBS’s “Early Show,” said that Federal Deposit Insurance Corporation head Sheila Bair “has indicated there are problems” with other banks. The senator added that he is “more optimistic” about mortgage giants Fannie Mae and Freddie Mac than he is about some lenders that engaged in these “very, very bad mortgages.”

Sometimes think a broken clock gets it right more often than Chris Dodd


In defense of fear

Franklin Roosevelt famously said "the only thing we have to fear is fear itself"

Might've made a great pep talk at the depths of the Great Depression, but it's lousy reasoning.  There are always plenty of things to fear.

Of course, being down on fear seems to be what the cool kids in class are into these days. Take this sunday newspaper columm.

Now President Obama has joined the bandwagon.

 our government made decisions based upon fear rather than foresight.....

Perhaps in the relaxed light of today's hindsight, Bush & Cheney made prompt decisions which we are not fully satisfied with now. Then again, when lower Manhattan was covered in ash Professor Obama was nearly a thousand miles away deconstructing the Consitution for his pupils. 

Fear is an acknowledgment of reality.  When we describe someone as "fearless", often it is a synonym for "foolhardy".  Of course, an absence of fear can yield inertia as well as impulsiveness. One who lacks fear may get smug, arrogant or fall into the trap of "paralysis by analysis" since the perceived danger seems far off and the discomfort of an effective response quite immediate.

The Obama team may argue our foreign policy was driven by fear. But in its most controversial aspect--the war in Iraq--it is hard to argue the ultimate decision was one made rashly or impulsively, as the run-up to war was lengthy and deliberate.    

Revisionism by the President today will not change the fact that among those who voted for war were  Joe Biden, Harry Reid and Chris Dodd.  . Does the President suggest these "leaders" are easily frightened?

No. this is a rhetorical flourish designed to appeal to those in the chattering classes who think sleep deprivation of a terrorist is a brilliant strategy grounded in behavioral science when a Democrat uses it, and is a descent into unspeakable barbarity when it is employed by a Republican.

Let's face it. President Obama is eager to trade in the currency of fear when he thinks it will buy him something he wants.

Consider the stimulus bill 

Obama painted a bleak picture if lawmakers do nothing.


In an op-ed piece in The Washington Post, the president argued that each day without his stimulus package, Americans lose more jobs, savings and homes. His message came as congressional leaders struggle to control the huge stimulus bill that's been growing larger by the day in the Senate. The addition of a new tax break for homebuyers Wednesday evening sent the price tag well past $900 billion.

"This recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse," Obama wrote in the newspaper piece


 or what his allies say about global warming.

Now it is a ticking time bomb that President-elect Barack Obama can't avoid

Hmm, can we waterboard an oil refinery and get it tell us how to stop greenhouse gas production?

No, it appears some fear is more equal than others.

The sad thing is that if one argues American's foreign policy over the past decade was driven by fear, our economic system was marked by the removal of fear. Which removed accountability and restraint.

I turn to Robert Rodriguez's prescient article in the summer of 2007.

My talk today, Absence of Fear, is a follow up and expansion of the Special Commentary section that appeared in my March 31, 2007 shareholder reports. It will focus on the concept of RISK since there appears to be little concern about risk in the financial markets currently. My goal is not to scare or sensationalize, but to get investors to consider various risks and ask the basic question, "Am I being sufficiently compensated for these apparent risks?" ..

We are concerned that, after many years of an excessively easy monetary Fed policy, a bubble of massive proportions has been created in the housing market. Many experts believe that the housing cycle is at or nearing a trough or at least is at a stable level. We are not of this opinion. We do not believe you inflate prices and demand over at least a decade and then this over stimulation is corrected in barely 18 months. We are of the opinion that this bubble has infected many areas of the financial economy. I will detail more of this in the fixed income portion of my speech.

This article continues to describe the various iterations of the bubble and its bursting. But one thing is apparent. None of the participants were sufficiently fearful of the market. Home buyers assumed prices would increase forever. and that the refi window could never close. Mortgage brokers assumed they could always sell their paper. Rating agencies assumed that A paper circa 2005 was like A paper circa 2000.  Holders of mortgage bonds assumed their losses could always be covered by credit default swaps.  Rodriguez points to one systemic problem built into the process that turned out not to remove risk, but to conceal it.

We are of the opinion that the distancing of the borrower from the lender has contributed to the development of lax underwriting standards. Each participant, in the securitization/origination process, takes their ounce of payment, but no one truly worries about the underlying credit quality since the loan will be sold.....Finally, the securitization market and the multiplicity of products that have been created have never been truly tested in a major credit contraction like that of 1990-94. This is because most of today's securitization products did not exist back then

(Note: Evidently word of this information failed to reach Banking Committee Chairman Dodd at his campaign HQ in Des Moines)

Warren Buffet is credited with the line " be greedy when others are fearful and fearful when others were greedy".  Seeing people lose their homes in the midst of the great real estate bubble I fully bought into this myself in the past decade. Alas, the entire financial economy pushed fear to the exits in the headlong pursuit of profit. In trying to create mechanisms to diffuse risk, they encouraged more of it.  

And lest this be thought of as an anti-capitalist rant, the politicians who brought you the Community Reinvestment Act  had no fear at all that our economy could absorb a virtually unlimited amount of subprime lending without adverse results. And the politicians all prided themselves with having a "light touch" as to regulation 

What would have happened if our private sector economy had been as driven by fear in the past decade as our foreign policy?  I would suggest we wouldn't be facing the debacle we stumbled into because we lacked fear.

President Obama wants to correct this situation. He wants to banish both greed and risk from the commercial marketplace.  There is an unpleasant word for this. though.


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