Things You May Have Missed
By Larry Doyle on February 21, 2009 at 6:10 AM in Bank Nationalization, Barack Obama, Christopher Dodd, Citigroup, Current Affairs, Economic Stimulus, Economy, Housing & Housing Crisis, Mortgage Crisis, Obama, Tim Geithner
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While there is tremendous volatility in the markets and commensurate anxiety as a result, there were some major stories and developments that got less play but deserved more.
Allow me to expound. Robert Shiller, a highly distinguished Economics Professor at Yale Univeristy and co-designer of the Case-Shiller Home Price Index spoke this morning on Bloomberg News. Shiller is the preeminent expert on trends and developments in housing. He made the following assessments:
1. Glad to see that Obama is making an effort to support housing but has serious concerns about the effort.
2. $75 billion allocated for loan modification is not nearly enough to make a truly meaningful impact. (remember there is another $200 billion allocated for Freddie and Fannie to refinance mortgages).
3. No plan or proposal for those holding Jumbo mortgages leaves a large part of the market without benefits. Those homes will likely hang over the market.
4. Shiller believes we may very well see a second wave of speculation in housing. He has this opinion because he thinks some buyers will try to “bottom fish” the market. He believes our view of housing as an investment vehicle as opposed to a means of shelter and comfort needs to change!
5. He finds it impossible to make a forecast on the housing market given the great uncertainties about the impact of the stimulus proposal and banking plans.
6. While he welcomes the Obama adminsitration’s efforts, he cautioned that this economic downturn led by housing will not be over quickly.
7. Confidence is badly needed and will only return when our government and global governments are able to develop strategic and robust long term planning.
What do I think of Shiller’s comments? I think he is stating that Obama’s housing plan is well intended but given that we can not distinctly segment the housing market by sectors that it will have a marginal impact. Additionally I think he is being cautious in stating that Americans need to change their mindset about homes being piggy banks. I measure his comments next to former Australian Treasury Secretary Keating and I see the same message; this downturn will take considerable time to turn around!
I also listened to the cult-like NYU Professor Nouriel Roubini today as well.
He offered the following:
1. Strong possibility of a sovereign default in the Euro zone. He singled out Ireland, Greece, Iceland, Spain, Italy and Belgium as countries with the most issues within their banking sectors. He does believe that if only one or two countries expose their problems that the balance of the European Union will support them. He did not offer an opinion if the contagion is so massive and spreads. He did highlight the fact that Western European banks have outsized exposures to emerging Europe and the emerging markets elsewhere in the world. He singled out Estonia, Latvia, Lithuania, Belarus, and Ukraine as the countries with the greatest issues.
2. In the United States he thinks the prospects of a temporary nationalization of a major bank or banks may happen very soon. He does think the Obama administration’s moves so far (bank plan, housing) are in the right direction but do not go far enough.
3. Roubini does believe that the United States has moved quicker to address our issues than either Europe or Japan.
4. On the housing front he thinks that we will eventually have to move to a “principal reduction” program in order for it to be effective.
5. How will we pay for all this? Everybody’s taxes will be going up although not right away. We will also have to deal with increasing inflation.
Away from these two titans, there was a lot of rumbling in the markets and from Washington about bank nationalization. While Ken Lewis, CEO of Bank of America was all over the news defending BofA and how nationalization should not be a topic of conversation, I saw and heard nothing from anybody at Citibank. The market believes that Secretary Geithner will be out next week with more details about his Financial Stability Plan (hopefully it goes better this time) and there is an outside chance he releases something over the weekend.
From Washington I heard conflicting viewpoints on nationalization from Senator Dodd. Dodd was panned on Bloomberg at one point. I will admit he makes for a very easy target.
LD
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I here submit u something about the bank nationalization :
Nationalized or Denationalized – It is Service that Matters
From a businessmen and industrialist point of view which I represent today, we in business and industry have been beneficiaries of all the above said advantages but we have borne the brunt of the inefficiencies caused by the system. This is because while the quantity in the system went up the quality of service has been questionable.
A long time ago, our Chamber had the good fortune of hosting about 12 of the country’s chief executives of banks. The talk at that time we had was service, service and service. The Government had to appoint a committee to go into the issue and the Committee issued hundreds of recommendation.
A lot of changes have taken place since then. I commend Corporation Bank as it stands out as an example for excellence, even under the ownership of the State. It is a matter of pride for our district that it stands tall today on the true qualification of standing of a banker that is the integrity of its operations and which shows in its performance the lowest non-performing assets.
But most of all it did something unique. It exercised autonomy on its own to the extent that the system permitted. It led itself into the path of innovation. I hold it a classic example of innovation and entrepreneurship when it launched the cash crop but also made it a successful. It was a unique combination of organization, technology and people that made it so.
The emergence of the new generation banks has changed the quality of the service. Backed by the major institutions these provided the major break in the qualitative aspects of service.
Therefore now there is definitely a need for a new look at the banking sector as a whole and introduce a series of steps – policy, organizational, systemic and technology to restore banking
To its true and original purpose – that is service of the citizens in banking services primarily the function of handling transaction money. The so called reform and liberalization process after 1992 saw the intention of the State that it no longer considered appropriate to continue its activity by dabbling in business and commercial activities. The ideology was given up long ago. We have not seen a single nationalization since 1992. State ownership and management has continued.
When the Government decided in principle that its involvement in banks should get reduced it did act. In respect of some banks shares were issued to the public and they became partly public owned and partly owned by Government.
This in my opinion is a step opposite to Nationalization. If the Government has decided in respect of even one or a few banks that they be let open for public ownership, then it is not logical for the Government to have full ownership in the rest.
Management would then be focused on each bank without lumping them together.
_____
Lorrie
http://www.southerncashadvance.com/texas/texas-payday-loan-question.html
Nice piece! -
My first issue is that I think he is dead wrong about this:
“our view of housing as an investment vehicle as opposed to a means of shelter and comfort needs to change!”
Investors in housing are good. Very good.
House investing means there will be a goodly supply of rentals for those of us who do not feel like getting up to our gizzards in debt for the rest of our lives.
Not just in loans, but upkeep, taxes, insurance,plus the anxiety of global warming - floods, tornados - and if a dirty bomb goes off in Manhattan, real estate within 200 miles will tailspin. And renters like us will simply pack up and migrate.
Anyone wanting to invest in the American dream has my blessing.
I bet I pay less in taxes, insurance and mortgage payment than most do for rent. To some it may seem a burden but it just depends on what is important to each individual. Homeowners have privacy and independence, neither of which is part of renting. I love dogs, also something frowned upon at many rentals. I love to work in the yard, plant flowers and make improvements to my home. It is an expression of myself. My purpose for owning a home is not an investment in the financial market but an investment in myself. But, I certainly am not up to my gizzard in debt. I will have my home paid off well before retirement and then will have no mortgage payment. Privacy, privacy, privacy. I would never rent again unless it was a last resort.
Standard…
Although Shiller did not explicitly state it in his comments, I believe his intent was that homeowners should not view their primary residences as “investment vehicles”.
Thanks for your input. Very insightful.
I am positive I pay less in taxes, insurance and mortgage payment than most do for rent. Homeowners enjoy, privacy and independence. It does require more committment but it also comes with great advantages. My home is a part of me and not an investment. But I will have it paid for before I retire and so will have no housing payment unlike renting. I love to work in the yard, plant flowers, and make updates. Privacy, privacy, privacy. I would never rent again unless it was a last resort.
If housing prices plummet as you say, we are no worse off than renters. Renters are paying for something they will never have any investment in. At least a house has the prospect.
You’re spot on. I wouldn’t be able to garden if I didn’t own the place. It is the one thing I do that gets immediate results. It is good for the soul. My house, too, is a home and not an investment, a word which cheapens the entire home-owning experience.
I’m with ya on that!
Should we nationalize the bank or just let them sponge off of us. In Ohio if you get unemployment compensation..it is tied to a “visa debit” card and you pay a fee that goes to the bank. Bankers will always figure out a way to get money off of the less fortunate.
http://jfs.ohio.gov/ouc/debitcardFAQ.stm#1a
Most banks will charge a fee if you don’t have an account of some kind though. While I don’t think banks should be charging alot of fees, they do incur costs such as labor costs for tellers and accounting to process transactions. Even Walmart charges a fee to cash payroll and tax refunds.
thanks i didn’t know that..times change..
OMG! We needed the Clintons so much and instead we got this freshman senator. I read where Soros is claiming that there’s no end to the economic spiral. Just love seeing the very people who created this mess preaching doom to the rest of us. At least Murdoch lost millions, there’s justice.
I agree. Although its good to be realistic, talking doom and gloom too much is a losing strategy. Why is it that starting with his inauguration speech, Obama’s brow has become furrowed, his smile lacks joy and he’s playing the role of chicken little as well as national scold via his recent comments to city mayors. I wonder if his supporters aren’t a just a little bit puzzled at what happened to their hope-filled leader.
Like you, Tek, I can’t imagine the Clintons acting so skittish under this circumstance. Although the challenges are indeed great, those two have been the consummate problem solvers and seem to relish that role.
On Thursday, John Courson, chief executive of the Mortgage Bankers Association weighed in as well.
“It seems to offer little help to borrowers whose loans exceed their property value buy more than 5%”, he said, noting that that requirement would limit the plan’s success in some of the hardest-hit areas in California, Florida, Nevada, and Arizona and parts of the East Coast.
Sassy…thanks for sharing these insights. This point touches on the fact that the market itself is SO much larger than the plan and the market can’t be segmented. Thus the plans will have limited impact. The question to be asked is: will the plan influence the entire market or will the entire market influence the plan? Or some of each?
Help me out with this. If you subsidize the guy who screwed up his mortgage at my expense (I will call him X), this is what I see happening (I will call myself forgotten person Y, or FPY).
X’s mortgage, for whatever reason, has become too large to bear. X has stopped making payments and is unable to sell his house because the value of the home has fallen to such an extent that it is no longer worth as much as the mortgage on it. X might walk away from the house, because X didn’t put much down on it and would have little actual loss in doing so.
FPY, on the other hand, took out a mortgage that she was comfortable with. In fact, in order to feel comfortable with the monthly payment, FPY put half down on her house. It left her with less cash in the bank, but the monthly payment is sustainable over the long term. FPY also took out a 30 year fixed mortgage, so that a surprise in the payment level would not be forthcoming, thus forgoing a lower payment in the beginning, for the security of no surprises later.
Administration (we’ll call it O) decides that X needs help. Administration crams down X’s mortgage to a lower principal and interest rate and then tells him if X is a good mortgage payer 12 times, he will get an additional $1000 off of his mortgage every time he does that. As soon as X gets a low principal, he promptly markets his house at that rate and sells it.
FPY would like to sell her house and move to someplace warm where being poor would be a little less bad, but would lose the 50% that she stupidly put down on her house. Because X sold his house for so little, the new value of her home is that new value. Because FPY put so much down on her house, she doesn’t qualify for a cram down because her mortgage is not under water, and she still makes her payment, because she’s a responsible person.
FPY’s taxes were also raised to help pay for this little program. X is laughing, because he is out from under that stupid house and he doesn’t actually pay taxes, so he loves O and continues to worship him and votes him in again for some more of that kind of action.
X asks O if he can help a guy out with his credit card debt, his student loans, and his car payment. O looks around for FPY to raise her taxes and doesn’t find her - she has moved to Canada, where they admit to being socialists. Country swirls the drain.
Heather…your example highlights the essence of “moral hazard!!”
Thanks.
Seriously, Larry, am I wrong, or am I missing something in this? This will not put a floor under the housing values - it will actually cause them to fall and encourage others, who might not ordinarily do so, to take advantage of the system. I have a feeling that it will be at the point that the normally responsible give up and jump in that they either a) rejoice, because their work is done, or b) decide that we just can’t keep going on this way and realize that they have to let people fail. Either way, the irresponsible will prosper, and the responsible will be brought down. I guess, since we are approaching that tipping point, where the irresponsible start to outnumber the responsible, we have a majority who are happy with the outcome?
That housing values plummet does not concern me one bit. That taxes go up do. What is happening is that government is taking more control of each individual’s life, yes, making life for some irresponsible people go merry while life for responsible people miserable. I think government wants communism and is trying to find something like it to rule us with.
Heather…I understand your feelings and share many of them but this is not an “all or nothing” situation. Plenty of people will be helped,some will be hurt, and some will game the system. Sounds like government to me!
Exactly. It can be seen clearly that the solutions are coming from people who do not love their country, they just love money. Money money.
I’ll be darned if I will pay for someone elses’s greed-homebuyer, investor or bank.
There has to be a logical, well thought out method to ameliorate the mortgage default situation. A temporary moratorium on foreclosures while these loans are re-evaluated objectively is a reasonable start.
Indiscriminately throwing billions of taxpayer money at the problem will just push the reckoning a little further into the future.
The Community Re-Investment Act (1977-?), which is the root of the problem, needs to be amended to include rational lending standards and stop this from happening again. That will prevent organizations like ACORN from using this law to force the banks into making these risky and predatory loans.
My first comment hit the spam filter apparently…a quote from John Courson of the Mortgage Bankers Association. Oh well!
While it seems strange to me, I have read several times that it is actually more economical to rent, rather than to pay loan interest, upkeep, repairs, and property taxes.
I still prefer my own space, for as long as possible!
LD - I kind of view Mr Soros as another big time hedge manager who is gaming the system for his own financial gain. He has the liberal ear because he funds their causes, but in the end he is for himself. That is not a negative comment, just a fact in the financial world.
I wonder what your view of Soros is.
I do not watch much main stream media today, but do watch the CNBC a lot. I have come to view it as their own form of soap opera. The Hypocracy of wanting Free Markets on the upside and social covering on the down side is a serious character flaw.
However I have come to the view the main problem today is a lack of clarity on the part of the banks and government. Specifically, how bad are the securities and are they attempting to prop up the system with financially insolvent credit default swaps. In the end, it is all overconsumption throughout the classes.
However untill they get done with the Fed Bank Stress test, I would think we are going to bump along the bottom. Then, hopefully we will get some clarity and can make some decisions
In the end, Obama, Pelosi and Reid are going to time this for recovery by the next election if possible Cynical - yup, but it is all a power game.
By the way, my home is paid off and is loosing value. But it may have been inflated beyond reality any way. However I have the freedom to do what I want. I am retired and life is good. Some times it is fun to just watch the grass grow beside the vegetable garden and flowers. Damn deer are a problem.
Good morning. I agree with most if not all your points.
Soros: he is perhaps one of the few global financiers in the position to influence both markets and public policy and the desire to do both. This puts him in a very dangerous position. He has profited handsomely during other crises, specifically in the 90s. He has been a MAJOR backer of the MoveOn.org group. I do not trust him.
CNBC…some good work but plenty of fluff. Overall I do not spend much time at that channel. I much prefer Bloomberg TV.
Lack of clarity: well they know what is best for the populace so we should just blindly accept what they tell us, right? …NOT…this was the very point of the piece, Legalized Bribery and the power of the lobbyists.
Stress Test: I view this as an intermediate step towards temporary nationalization of certain institutions. I have to believe that Geithner knows in depth waht is going on at the major banks. he has been living this situation for a while as head of the NY Fed. Look for this situation to develop very quickly from here.
Obama, Pelosi, Reid… I think you are giving them too much credit for being able to turn the economy. My sense is that they are much more focused on delivering a public policy agenda via economic plans than delivering good fundamental economic plans.
Deer…good luck ..we have the same issue.
Always good to hear from you.
Have you read any of these articles? They may give you perspective on Mr. Soros.
and what he would be willing to do to change this country to match the image in his head:
http://www.americanthinker.com/2008/02/george_soros_and_the_alchemy_o.html
It refers to this article, which was written before the 2004 election:
http://archive.newsmax.com/archives/articles/2004/2/1/132047.shtml
and this is just an article about Soros that I found interesting because it details some of the money trail…..
http://www.aim.org/special-report/the-hidden-soros-agenda-drugs-money-the-media-and-political-power/
What do you think?
Heather,
I had read the first piece but not the others. I have always viewed him as somebody willing ti utilize his excessive wealth and influence to achieve extreme measures. That seems to me to be a dangerous combination.
I was not familiar with nor ahd ever heard of his desire to promote a liberal drug policy.
In short, I do not trust him.
These are very compelling reads. Thanks for sharing.
yep.it.s good been here for almost 50 years on GODS little acre..love it.leaving it to the grandkids.
it may not be worth a lot .in money.yet it is priceless.it.s HOME…
I think I missed that Roubini is a hack. And probably a communist too. The worse it gets the better for him.
I think I missed that they don’t know what they are talking about. They only know about economics and finance. They don’t know about faith. They seem faithless unattached people who will sell everything for 30 pieces of silver.
Too bad they can’t solve this problem by government spending only 1/100 or even 1/500ths of the amount now on the table. Too bad. Too bad the best solution doesn’t even cost a dime. Too bad they are unable to propose it because they are faithless and clueless. Too bad.
This whole thing about people having to stop thinking of their homes as investments seems to play into Obama’s whole “spread the weath” or “level the playing field” thing. If our homes aren’t worth anything, we’re no better off than those who have homes, are we? The hardest hit people in this whole financial mess, from the position of LOSSES, seems to be the middle class people who worked to have homes and who saved in 401K’s only to see them be wiped out in a flash. No one is swooping in to replenish the 401k coffers, are they? No, because that would help the middle class get back money they have lost. And we’re being asked to bail out foreclosed homes in order to save the value of our homes even though IT WILL NOT WORK. So the middle class is screwed every which way as far as I can see–all in an effort to keep things “more fair” (Obama and Biden’s words). Let’s not even take into consideration the hard work and sacrifice most of us make to get where we are at. That is of no consequence to those people who wish to make us all equal.
Exactly. It is a classic parallel example of religion ran amok. It is the reason why John the Baptist came before Jesus and had such an impact with well meaning Pharisees and the entire population of Jerusalem. “Without repentance there is no remission of sin.” Period. It doesn’t matter how many time you confess your sins, without repentance nothing really happens. Period. But churches lead people to believe in formulas for salvation.
Here you see the same thing. A formula for salvation that does not include repentance. Nothing happens in reality. Is just a farce.
LD, Morning,
While listening to the am radio last eve, the host made mention of Dodds comment and how the market reacted.
He raised an interesting point on nationalization of banks. President Eisenhower was turned down by SCOTUS when nationalizing the steel industry…
Is it constitutional to do this with banks?
I am probably “showing my naiveté”, but yet the hey, it was an interesting question.
I agree the house is not a piggy bank. Bought at 200, the high was 700 and now the MLS shows a comp that went for 320. It use to be a form of stability to own a house with the long term view…
I saw the head of ACORN “protesting” over housing in Oakland, recommending squatting. Irony is that this same person was directly involved in sueing Fannie and Freddie to get these diseased loans in the first place.
So when Dodd gets money from Bears and Stern, sits on a committe that gave B&S the bailout money, it gets me pissed.
Thanks for the insightful articles you post.