Occupy Everything

It has been almost a decade since the birth of subprime mortgage loans.  It has been six years since the bursting of the real estate bubble.  It has been over three years since the GSEs were placed under conservatorship.  It seems forever since policy makers launched HAMP, QE1, QE2, HARP, tax credits, carry forward loss deductions for builders, fiscal stimulus plans and a great many  foreclosure prevention road blocks.

The interventionists seem to have decided that none of the interventions to date have worked to their satisfaction.  More interventions are therefore needed.  At the moment the next round falls into two categories: massive refinancing and the REO to rentals plan, which includes bulk sales to investors.  These policies will likely be supported by some type of QE3 from the Fed.

The nation has no leadership in housing.  Not only is there no housing policy, no one is working on a plan. Real estate financing has been nationalized and survives only because the Federal Reserve is throwing endless amounts of money at it and the Treasury is guaranteeing all the debt.  No one has any idea how the conservatorship of the GSEs is going to be terminated.

At a time when tough decisions need to be made with regards to 90% of real estate financing (GSEs & FHA combined), the country is operating in a vacuum. This vacuum is quite vulnerable to manipulation by special interest groups whose motives have little to do with the health of the overall real estate market. All the upcoming events pertaining to the GSEs are mainly force fed by a few bureaucrats for the enrichment of a few fat cats.

Instead of wasting time analyzing the latest ideas, this post takes a look at the people behind the ideas. I'd like to know who is going to fix the GSEs, real estate financing and the real estate crisis. I have no clue what the precise consequences of this mess may turn out to be. As taxpayers we can only helplessly wait to see how much it is all going to cost.

Here is the cast of clueless characters:

 

The Executive Branch

With regards to fixing the GSEs, the buck stops here. Obama needs to provide leadership and find the people to execute his vision, assuming he has one. Starting with his chief of staff, Daley just resigned after one year on the job.  His replacement is Jack Lew, a budget guy. 

It is doubtful that Daley spent much time thinking about real estate last year. It is equally doubtful that Jack Lew will be working on anything in the upcoming months aside from Obama's re-election campaign.

Next in line in the administration is Tim Geithner. He is reported to have been working on his personal exit plan for quite some time.  He is the point man for GSE reform. He has not done anything in the last three years, and I don't think we should expect anything other than a resignation announcement from him in the near future.

 

The GSEs

Starting with the past leadership, there were Richard Syron and Daniel Mudd, the last CEOs at the helm of Freddie and Fannie when they were taken down.  They are now both being sued by the SEC for understating the subprime loans held by the firms. Not that Syron and Mudd should not be sued, but they serve as a warning to any future CEOs who may actually have good intentions. These are examples of what can happen if things turn out bad.

 

Thinking with his feet, David Moffett was the first to leave, after trying out Freddie's CEO job for just six months back in 2009. I think that is what they call a "thanks, but no thanks".  Halderman then took over the helm and he too decided to take a hike last October after just two years, along with chairman of the board Koskinen. I think Halderman is still acting as CEO until the next sucker can be found to take the job.

Over at Fannie, Michael Williams has been with the company for over 20 years, the last three as CEO. On the eve of the implementation of all these grand plans, Williams resigned. He is only 54, certainly not of retirement age. I think that is what they call "throwing the towel".

Incidentally, Halderman and Williams are at the receiving end of compensation for two years of work totaling $17 million.

 

Conclusion: There is no-one running Fannie or Freddie.

 

The FHFA (Federal Housing Finance Agency)

Supervising Freddie and Fannie is the FHFA, with acting director Edward DeMarco at the helm.  DeMarco has been in this acting capacity since August 2009, over 2 years ago.  Here is an example of how much he has accomplished.  This is the FHFA's strategic plan (pdf) posted on their website.

It is still shows James Lockhart as the director, along with his photo. The "Message From the Director" is still signed by Lockhart. It would not be as pathetic if Lockhart had not gone over to the 'other side'. He is now with Wilbur Ross, one of the top sharks circling the GSE carcass.

So here we have the three agencies, Freddie, Fannie and FHFA with no management at a time when strong leadership is desperately needed. If there was ever an ideal time to consolidate these duplicating agencies, this is it.

 

The Legislative Branch

Congress is busy condemning how much these GSEs pay their executives. Conservatives are complaining that the GSEs are doing too little and spending too much money. Liberals are complaining that they are doing too little and not spending enough. There is plenty of blame,  but nothing constructive. Senator Corker is the only one we hear from once in a while on the subject of GSEs. His plan is at best sophomoric, if it can be called a plan at all.  Personally, I do not know who on Capitol Hill or the Senate is actually responsible for the GSEs. Can you name them?  Fortunately, we know Barney Frank is going to be gone. Who is going to be his replacement, Maxine Waters? Now if that does not scare you, you are fearless.

 

The Federal Reserve

Finally, we have the Bernank and the merry pranksters at the Federal Reserve. I think it is best to let their wisdom speak for itself.

First, a few quotes from Ben Bernanke himself:

 

(July, 2005) "We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."

(October 20, 2005) "House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals."

(February 15, 2006) "Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

(February 15, 2007) "Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low."

(March 28, 2007) "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

(May 17, 2007) "All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable."

 

From the recently released 2006 FOMC transcript:

 

Bies, cont. " However… let me just say that the bottom line is that overall mortgage credit quality is still very, very strong. "

Bies, Oct. '06: "We are also seeing in a small way increased predatory activity with loans…"

Yellen, Oct. '06: "Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting."

Stern, Oct. '06: "The housing situation notwithstanding, I remain somewhat more optimistic about our prospects for real growth…"

Mishkin, Sept. '06: "The excesses in the housing sector seem to be unwinding in an acceptable way… I'm actually quite positive."

Warsh, Sept. '06: "Capital markets are probably more profitable and more robust at this moment… than they have perhaps ever been."

Geithner, cont. "If we see a more-pronounced actual decline in housing prices, will that have greater damage on confidence and spending?"

Geithner, Sept. '06: "We just don’t see troubling signs yet of collateral damage, and we are not expecting much."

Guynn, stepping down from the FOMC: "I’m counting on all of you to protect the buying power of my hard-earned retirement savings."

Lacker, Sept. '06: "I’m still fairly skeptical of large indirect spillover effects on employment or consumption.”

Minehan, cont. "So it is hard actually for me to see that residential investment will be that hard hit that long."

Minehan, Sept. 06: "Buyers should recognize housing [is] more affordable & resume purchases, perhaps w/out further major price declines."

Yellen, cont. "Houses [in Boise]… are now being dressed up to look occupied… so as not to discourage potential buyers."

Yellen, Sept. '06: "The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us…"

Fed staff, Sept. '06: "We are not projecting large declines nationwide in house prices."

Fed staff, Aug. '06: "We forecast single-family starts will bottom out at annual rate of 1.43m units." [Actual low (so far): 445k in '09]

Bies, cont. "…rather than being a drain going forward and that will also get the growth rate more positive."

Bies, June '06: "So I really believe that the drop in housing is actually on net going to make liquidity available for other sectors…"

Geithner, June '06: "We see a pretty healthy adjustment process under way… The world economy still looks pretty robust to us."

Guynn, June '06: "…Of greater concern to me, however, is the inflation outlook."

Guynn, June '06: "We are getting reports that builders are now making concessions… even throwing in a free Mini Cooper – [LAUGHTER]."

Fed staff report, June '06: "We have not seen—and don’t expect—a broad deterioration in mortgage credit quality."

Bernanke, March 2006: "Again, I think we are unlikely to see growth being derailed by the housing market."

 

In conclusion, I think the occupancy rate will skyrocket in 2012:

Occupy Wall Street. 

Occupy the Fed.

Occupy the White House.

Occupy vacant REOs.

Occupy …


 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

6 Responses to “Occupy Everything”

  • To think we have these idiots running the banking system? Yellen must be brain dead. The home asset class was at least as big as the stock market at the peak and it was well over 50% leveraged. They would have been sweating bullets if the stock market had been that margined and it was threatened with a 20% decline, though its margin could have been liquidated much more easily. They should have gone to the local high schools to staff this group.

    • White eagle:

      I will tell you what is really scary,at least to us in Europe:people in charge of Pentagon,CIA and each fellow at the White house since the murder of JFK.
      God help us all!Where do you find all these morons?
      USA deserves Palin for president…

  • jimmyjames:

    Yellen, Oct. ’06: “Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting.”

    *************
    Considering that all the economic drivers of the planet were totally leveraged to that “small sector” Yellen’s “self correcting” statement will come true some day-when the whole planet declares bankruptcy-

  • Andyc:

    Agree

    Its a shame but we cant even say “the lunatics are running the asylum” anymore as everyone working at the asylum seems to be “out to lunch”

    Off topic but very interesting animation from Nanex

    http://www.nanex.net/aqck/2804.HTML

    At Nanex they are calling this “packet flow” I assume they mean this as bid/offer HFT quotes flowing through the system

    HFT is a disaster waiting to happen.

    • anto:

      Everyone is linking that gorgeous Zero Hedge animation of the HFT churn. But I have to admit, while I kind of think I understand the gist of the animated chart, I am pretty confused. What are the x y axes measuring exactly? The x-axis is 0-1000, and the y axis is 0-16, but I can’t figure out what the units are.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Survive the Winter
      A Flawless Flock of Scoundrels One of the fringe benefits of living in a country that’s in dire need of a political, financial, and cultural reset, is the twisted amusement that comes with bearing witness to its unraveling.  Day by day we’re greeted with escalating madness.  Indeed, the great fiasco must be taken lightly, so as not to be demoralized by its enormity.   Symphony grotesque in Washington [PT]   Of particular note is the present cast of characters. ...
  • Credit Spreads: The Coming Resurrection of Polly
      Suspicion isn't Merely Asleep – It is in a Coma (or Dead) There is an old Monty Python skit about a parrot whose lack of movement and refusal to respond to prodding leads to an intense debate over what state it is in. Is it just sleeping, as the proprietor of the shop that sold it insists? A very tired parrot taking a really deep rest? Or is it actually dead, as the customer who bought it asserts, offering the fact that it was nailed to its perch as prima facie evidence that what...
  • The Strange Behavior of Gold Investors from Monday to Thursday
      Known and Unknown Anomalies Readers are undoubtedly aware of one or another stock market anomaly, such as e.g. the frequently observed weakness in stock markets in the summer months, which the well-known saying “sell in May and go away” refers to. Apart from such widely known anomalies, there are many others though, which most investors have never heard of. These anomalies can be particularly interesting and profitable for investors – and there are several in the precious metals...
  • A Falling Rate of Discount and the Consumption of Capital
      Net Present Value Warren Buffet famously proposed the analogy of a machine that produces one dollar per year in perpetuity. He asks how much would you pay for this machine? Clearly it is worth something more than $1.00. And it’s equally clear that it’s not worth $1,000. The value is somewhere in between. But where?   We are not sure why Warren Buffett invoked a money printing machine of all things – another interesting way of looking at the concept is by e.g....
  • Business Cycles and Inflation – Part I
      Incrementum Advisory Board Meeting Q4 2017 -  Special Guest Ben Hunt, Author and Editor of Epsilon Theory The quarterly meeting of the Incrementum Fund's Advisory Board took place on October 10 and we had the great pleasure to be joined by special guest Ben Hunt this time, who is probably known to many of our readers as the main author and editor of Epsilon Theory. He is also chief risk officer at investment management firm Salient Partners. As always, a transcript of the discussion is...
  • What President Trump and the West Can Learn from China
      Expensive Politics Instead of a demonstration of its overwhelming military might intended to intimidate tiny North Korea and pressure China to lean on its defiant communist neighbor, President Trump and the West should try to learn a few things from China.   President Trump meets President Xi. The POTUS reportedly had a very good time in China. [PT] Photo credit: AP   The President’s trip to the Far East came on the heels of the completion of China’s...
  • Is Fed Chair Nominee Jay Powell, Count Dracula?
      A Date with Dracula The gray hue of dawn quickly slipped to a bright clear sky as we set out last Saturday morning.  The season’s autumn tinge abounded around us as the distant mountain peaks, and their mighty rifts, grew closer.  The nighttime chill stubbornly lingered in the crisp air.   “Who lives in yonder castle?” Harker asked. “Pardon, Sire?” Up front in the driver's seat it was evidently hard to understand what was said over the racket made by the team of...
  • A Different Powelling - Precious Metals Supply and Demand Report
      New Chief Monetary Bureaucrat Goes from Good to Bad for Silver The prices of the metals ended all but unchanged last week, though they hit spike highs on Thursday. Particularly silver his $17.24 before falling back 43 cents, to close at $16.82.   Never drop silver carelessly, since it might land on your toes. If you are at loggerheads with gravity for some reason, only try to handle smaller-sized bars than the ones depicted above. The snapshot to the right shows the governor...
  • Business Cycles and Inflation, Part II
      Early Warning Signals in a Fragile System [ed note: here is Part 1; if you have missed it, best go there and start reading from the beginning] We recently received the following charts via email with a query whether they should worry stock market investors. They show two short term interest rates, namely the 2-year t-note yield and 3 month t-bill discount rate. Evidently the moves in short term rates over the past ~18 - 24 months were quite large, even if their absolute levels remain...
  • Heat Death of the Economic Universe
      Big Crunch or Big Chill Physicists say that the universe is expanding. However, they hotly debate (OK, pun intended as a foreshadowing device) if the rate of expansion is sufficient to overcome gravity—called escape velocity. It may seem like an arcane topic, but the consequences are dire either way.   OT – a little cosmology excursion from your editor: Observations so far suggest that the expansion of the universe is indeed accelerating – the “big crunch”, in...
  • Claudio Grass Interviews Mark Thornton
      Introduction Mark Thornton of the Mises Institute and our good friend Claudio Grass recently discussed a number of key issues, sharing their perspectives on important economic and geopolitical developments that are currently on the minds of many US and European citizens. A video of the interview can be found at the end of this post. Claudio provided us with a written summary of the interview which we present below – we have added a few remarks in brackets (we strongly recommend...
  • Precious Metals Supply and Demand
      A Different Vantage Point The prices of the metals were up slightly this week. But in between, there was some exciting price action. Monday morning (as reckoned in Arizona), the prices of the metals spiked up, taking silver from under $16.90 to over $17.25. Then, in a series of waves, the price came back down to within pennies of last Friday’s close. The biggest occurred on Friday.   Silver ended slightly up on the week after a somewhat bigger rally was rudely interrupted...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com