Crisis of Credit Visualization

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

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Call Your Senator/Congress Person Today

Tell Congress to WAIT to pass ANYTHING.

• Not $700 Billion anything.
• Start slow -- $150 Billion... $50 Billion a month * 3 months.
• 30% haircut, but really it needs to be based on the neighborhoods.
• The government OWNS the process, not the crooks who screwed us already.
• No more payouts to CEOs. No way, no how, never again.

Ian Welsh has the plan. READ IT ALL.

Firedoglake

Why the Dodd Bill Won’t Bail the Economy Out And How To Make It Do So

Why? Well, first of all it's paying too much for mortgages. 15% off current prices is less than most properties are going to drop. I know folks don't want to hear that, but a return to trend is more than that. 30% would be a reasonable number, but the proper way to do it is to figure out what housing prices in an area would have been without a bubble and pay slightly less than that, though that's slightly punitive. But then, why not be slightly punitive? No reason why the government shouldn't make a bit of a profit on bailing out banks. They already booked their profits and gave them to their executives, after all.

To work, a bill has to establish a reasonable floor for house prices. If it doesn't 700 billion won't be enough, there are trillions of dollars of securities based on mortgages out there, and as prices continue to decline, they will go under and have to be bought. Either the government blinks and refuses to borrow and spend trillions to do it, in which case all the 700 billion did is buy a bit of time and bail some CEOs out, or it goes all in and winds up borrowing trillions. Not only does this money go straight to oil inflation and probably general inflation, and crash the dollar, but if it succeeds in holding housing prices higher than they really should be it leaves the US with a cost structure that is too high, and thus not competitive. Ie., expect offshoring to resume, and get ready for that vacuum cleaner to suck your job overseas.

On top of that since every dollar of spare money is being used for nothing but holding up housing prices, there will be no money for business borrowing by real businesses (those that make things), which means there will be no job recovery and no real export recovery. There will also be less and less credit for consumer spending, which will reduce demand (though, what the hell, you won't have any money anyway.)

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Read it ALL please. Ian is always worth reading.

Now that it looks as if we're not going to rush to a vote any second, start printing Ian's articles and MAIL THEM to your Senator and Congress Person. Even consider hand-delivering them to their office if you can. FedEx them. Get them there marked "PERSONAL".

If you have any in, now is the time to use it. This is simple stuff. Don't let the Rich Kewl Kids make one last grab for the money. That is precisely what those fuckers are trying to do; screw us with our pants on, taking money from the Middle Class (the working class and poor don't have enough money to make it worth it) -- our homes and what's left of our 401K's) -- and hand it directly to the Owning Class. Pack it in place with laws, and ka-WHAMO, it's done. Bush retires and the Owning Class has Fucked everyone else for the next 30 years.

We would need a full-scale revolt, another Boston Tea Party to fix things if this gets by. Which can be done, but oh wow, costly. Better to get it right the first time, as Roosevelt did over Hoover.

As Sara Robinson keeps pointing out... as futurists and historians ALL keep pointing out... as Minstrel Boy keeps pointing out... Roughly once every human life cycle -- that's a saeculum, or "a natural century", approximately one hundred years -- the conservatives get full control of our money. THIS is what happens.

The Great Depression is still within memory for many of us through our parents and grand-parents. The Civil War is even within memory through the stories our grand-parents and great-grand parents told our parents which they passed down to us orally and in family histories and books which meant something personally. If we remember and pay attention, we KNOW what happens when we let the conservatives, the "Republicans", whatever name they are calling themselves this fracking time around, we know what happens when the OWNING CLASS gets their hands on Middle-Class money.

The steal it. They flat out steal it, because they believe they are the SONS (never daughters) of KINGS, with the right to rule. Our place, they believe, is to do what we are told and to serve them. They own everything by right of Kingship, therefore anything they do is always okay.

Truly they believe this.

They believed this before the Civil War.

They believed this before the Great Depression and World War II, when Prescott Bush was selling pig iron to the Nazis.

They believe it now when George W. Bush is selling American jobs to India and Mexico, and American dollars to China and Japan, while giving our real estate and 401Ks to the Owning Class in exchange for what? For requiring us... as we approach Middle Age and Elderhood, the Middle Class and our children and grand-children in exchange for losing all our assets, have the privilege of working our asses off for the next 30 years to pay the bill and interest to Bush's children and grand-children.

Because Bush is the Grandson of Prescott Bush, he is Owning Class and we're not, and this is How the World Works. Money trickles UP; Work trickles DOWN. Don't like it? There's always the Army. Trust me, we're going to be using it a lot.

We should be happy we're being allowed to even work to pay off what we owe. We only get that much because we're white, i.e.: human.

The colored are being kicked out of the country or tortured. 'Cause as the former First Lady says, the only good brown person is in the fields. And don't even get her going about the blacks (that isn't the word she used.) Unless we're talking Golf. Or shoe shines. Or maybe music. What with that natural rhythm.

Anyway.

Call your Senator/Congressman today. Before George W. Bush asks James Dobson to have God destroy another great American City because of the ho-mo-sex-uals. Hey, be glad it's Dobson he's asking, not the Bin Laden family.

(NO, I'm not a fracking 911 conspiracy theorist; I'm just having fun. Jeezze. Zero possible way it could be kept a secret. No way, no how.)

Unless of course, you want to work for the Bush family for 30 years. Assuming you are white. If you're a person of color, feel free to ignore everything I said. Because your ass is gone anyway. Unless Congress stops this bill.

Call your Senators.
Call Congress (general number.)
Call your Congress person.

Here's Roll Call (with look-up for Senate/Congress.)

Rock and Roll. Don't let this go down as set up.
Just do not.

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Free Houses in Subprime Meltdown

I know something about this subprime business through my work and this story on BoingBoing caught my eye.

Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.
That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton. The Seattle-based lender failed to prove that it owned Lents' mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

"If you're going to take my house away from me, you better own the note," said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company. --Tampa Bay Online

It's a fact that through the relentless re-packaging and re-selling of thousands of these loans many banks have lost the paperwork on the houses they own. Unlike Japan which maintains a central repository for this sort of thing, it's the mortgage holder in the U.S. that is responsible.

This problem, that the mortgage companies would like to not publicize, is huge. Quite possibly affecting up to $2 trillion dollars worth of mortgages. If you are a homeowner who is in foreclosure procedures, or even being threatened. Make the bank prove they own your home. The banks share a large percentage of blame for this subprime crisis.

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Irony thy name is fuckwit

Overall, the household sector seems to be in good shape, Greenspan said...    (usatoday.com)

posted without comment.

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We All Fall Down

(Yes, the bear still gets BIG when you click. BIG.)

When Markets Lose Their Minds

Here's the tease. Go read the whole thing.

PrudentBear

Free market economics is famously predicated on “market rationality,” the idea that each participant in the economy acts as a coolly reasoning “homo economicus” in purchase and investment decisions. Yet as the disintegration of the 1995-2007 credit bubble continues it is becoming more and more obvious that in several areas economic decision-making during this period has been highly irrational. There are no complete solutions to this problem, but there are palliatives.

• Subprime mortgages themselves exemplify irrational markets, yet the participants’ activities at each stage were economically in their own rational interest:
• Low income consumers took on mortgages they had no prospect of affording because they believed from the experience of others that house prices would rise sufficiently to bail them out. In any case being often near bankruptcy the potential profit from successful speculation appeared to them greater than the potential loss from default.
• Mortgage brokers sold subprime mortgages because they got a commission for selling them and were not responsible for the credit risk.
• Investment banks packaged the subprime mortgages into multiple-tranche mortgage backed securities because they received fat fees for doing so and again had no real responsibility for the credit risk.
• Rating agencies gave the upper tranches of mortgage debt favorable ratings, because they made a great deal of money from providing ratings for asset backed securities, needed to keep in the favor of the investment banks who brought them this attractive business, and had mathematical models (either their own or the investment banks’) “proving” that the default rate of the securitized mortgages would be low.
• Investment bank and rating agency mathematicians produced models “proving “ that default rates would be low, ignoring the real-world correlations between defaults on low quality consumer debt, because they were well paid to do so – the alternative was to return to a miserable cheese-paring existence in academia.
• Finally the investors bought asset backed securities because they could achieve a higher return on them in the short term than their borrowing costs, and could tell their funding sources (in the case of hedge funds) or bosses (in the case of foreign banks) that they were taking very little risk because of the securities’ high rating.

Each step of the process was rational (albeit operating on imperfect information), yet because incentives were hopelessly misaligned, the final result was an irrational market, in which loans that would not be repaid were securitized and sold to investors seeking an above-market return at below market risk, a combination that in the long run ought not to exist without the application of extraordinary intelligence.

In the credit card business, currently equally likely to subside into a slough of defaults, the rationale was a little different. Here the subprime credit card consumer had no rational basis for believing that anything he bought with the card would become sufficiently valuable to pay off the card debt. Instead, the credit card business became a tribute to the power of advertising; by sending out credit card solicitations weekly to every deadbeat in the United States, the card companies were able to persuade consumers that taking on too much debt was a perfectly natural means of acquiring the consumer goods or vacations they craved. “Homo economicus” would have rejected excessive card offers; in the real world unsophisticated consumers are deluded into thinking that credit card debt is manageable, and that their income will increase sufficiently to service it. As with subprime mortgages, credit card lenders would not have been so aggressive if the assets had resided on their balance sheet, but through securitization they too could delude themselves that they were sloughing off the credit risks onto anonymous third parties.

The derivatives market was also an area in which irrationality held full sway. Here the fault was excessive belief in mathematical models. It was attractive to traders and to operating management to pretend that markets were fully stochastic random walks – after all, Nobel prizes had been given for this assertion – and to assess Value at Risk on that basis, ignoring the reality that markets often behave in a highly non-random manner. By doing this, management could claim to investors that risk positions were in reality modest, while traders could bet the future of the institution on gambles that may go spectacularly wrong every few years, but in the meantime keep the investor capital and the bonuses flowing in.

Nothing stays up forever. There's a reason a dollar in Canada is now worth a dollar in the U.S. (You didn't know? Go read that also.) The Canadian buck is equal to the U.S. dollar. Today is should happen (yesterday it was nudging against the tick.)

Gold is up, the Euro is up, the dollar is in the fucking tank.

Nothing lasts. Especially empires founded in inflated petro-dollars backed up by overwhelming military might. Our boy-king has fucking BROKEN our military, so now we can't shove our petro-dollars up the asses of the treasuries of every National Treasury in the world.

No one's pulled the rug out from under us quite yet, because a wounded Cheney can still bite plus everyone still holds literally billions and mega-billions in U.S. treasuries; they'd be causing their own net worth to be fucked. We would -- not might, would -- retaliate against anyone who started against us. But when the whole world starts selling Treasuries.

It doesn't matter much if we're attacked fast (which is what Cheney is geared up for) or nice and slow like the classic story of the Daddy Bull and the Baby Bull on the hill (someone will tell it in comments.) We're getting fucked by everyone this time. The emperor has no clothes left anymore. Because we've revealed in Iraq just how easy it is for a two-bit country to whoop our ass.

So long of course as we're not going to go in and raise them to the fucking ground and kill fucking EVERYONE leaving dust and radiation for 100 years.

There is that option. There is, always, that option. *nods a very scary hello to fucking Satan in the form of Dick Cheney and his minions*

Which is precisely why this global ass-fucking the dollar is getting is coming with the Daddy Bear (not a bull; we're switching, actually, mixing metaphors -- keep up) and the Baby Bear on the hill coming down slowly. But the United States is going to get fucked by every nation in the world -- including our special friend, England -- just the same.

Take that from the bank and sit on it.

And if you're stocking up, I'd do it in gold and silver bullion coins. Euro denominated funds in overseas accounts. And enough food, water, medicine and other critical supplies to ride out six months. Ain't life grand.

It's not if. It's when.

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“The Republicans in Congress lost their way.”

Greenspan Lets It Rip
The Age of Turbulence: Adventures in a New World

Pulling no punches, retired Federal Reserve Chairman Alan Greenspan in a memoir to be published tomorrow, The Age of Turbulence: Adventures in a New World, speaks candidly of his time as Fed Chair, the presidents he served with, and lays out his vision for the future. Greenspan, 81, was chairman of the U.S. central bank from August 1987 until January 2006. He was the second-longest serving chairman in the Fed's 93-year history.

Like any memoir, there are attempts to rewrite the past, most notably Greenspan's claim to have preemptively wanted to raise rates in 1997 against a possible future stock-market bubble, instead of having slashed rates and kept them there, thus fueling and being directly responsible for the housing bubble:

W$J

Mr. Greenspan won plaudits for achieving low inflation and unemployment with just two mild recessions during his tenure at the Fed. But more recently his record has taken some knocks. Some critics fault him for not doing more to restrain the stock bubble of the 1990s, and for responding to its eventual bursting with such low interest rates that housing prices subsequently soared.

Mr. Greenspan writes that in early 1997, he told his colleagues the Fed should raise interest rates as a "preemptive" move against a stock-market bubble. But transcripts of Fed meetings from that period do not support his book's version of events: They show Mr. Greenspan argued for a rate increase principally because of inflation.

But this is quibbling.

Many economists including many opposed to Mr. Greenspan, as well as other observers (including myself) believe market forces would have resulted in low interest rates anyway, that Mr. Greenspan was correct to lower rates as inflation was -- and always is -- an enormously greater risk than any bubble in a single sector.

Notes from the Fed as well as what little public record Greenspan left behind -- surprisingly little, actually; the man raised avoiding talking on the record to a fine art, as he put it, “mumbling with great incoherence” -- bear out this view, that Fed Policy in Greenspan's last years was to keep inflation under control now no matter what, and deal with a bubble if and when, later.

Greenspan also begins to come clean about what many of us believe to be one of his most serious errors, interjecting himself into politics with his support of the Bush tax breaks of 2001.

NY Times

Though he does not admit he made a mistake, he shows remorse about how Republicans jumped on his endorsement of the 2001 tax cuts to push through unconditional tax cuts without any safeguards against surprises. He recounts how Mr. Rubin and Senator Kent Conrad, a North Dakota Democrat, begged him to hold off on an endorsement because of how it would be perceived.

“It turned out that Conrad and Rubin were right,” he acknowledges glumly. He says Republican leaders in Congress, made a grievous error in spending whatever it took to ensure permanent Republican majority.

Mr. Greenspan has critics as well, and they are likely to weigh in as soon as the book is published. Though he publicly disagreed with Mr. Bush’s supply-side approach to tax cuts, urging Congress to offset the cost with savings elsewhere, he refrained from public criticism that could have shifted the debate. His willingness to criticize now, 18 months after leaving office, may open him to the charge of failing to speak out when it could have affected policy.

Today, Mr. Greenspan is both indignant and chagrined about his role in the Bush tax cuts. “I’d have given the same testimony if Al Gore had been president,” he wrote, complaining that his words had been distorted by supporters and opponents of tax cuts.

And then there's the presidents. Greenspan makes assessments as sharp of presidents as he does of markets.

W$J

From serving under so many presidents, Mr. Greenspan concludes that there's something abnormal about anyone willing to do what it takes to get the job. Mr. Ford, he writes, "was as close to normal as you get in a president, but he was never elected." The Watergate tapes, he says, show Richard Nixon as "an extremely smart man who is sadly paranoid, misanthropic and cynical." He recalls telling someone who had accused Nixon of anti-Semitism that he "wasn't exclusively anti-Semitic. He was anti-Semitic, anti-Italian, anti-Greek, anti-Slovak. I don't know anybody he was pro."

Ronald Reagan's ability to instantly tap one-liners and anecdotes in support of a particular policy represented an "odd form of intelligence." He describes Bill Clinton as "a fellow information hound" with "a consistent, disciplined focus on long-term economic growth" whose relationship with Monica Lewinsky "made me feel disappointed and sad."

CNNMoney.com (Fortune Magazine)

when Greenspan asserts that Richard Nixon and Bill Clinton were "by far" the smartest Presidents he worked with, those two little words say quite a lot about Gerald Ford, Ronald Reagan, and a couple of guys named Bush.

Surprisingly for a self-described "lifelong Republican," Green­span was happiest as Fed chairman when Clinton was in the White House. (He also liked his time running Ford's Council of Economic Advisors, where it was his pleasant responsibility "to shoot down harebrained fiscal policy schemes.")

With the first George Bush, Greenspan had what he calls a "terrible relationship."

He faults the administration of Bush II for a ­decision-making process driven entirely by political calculation.

By comparison, he found the Democratic interregnum sandwiched between two slices of Bush a version of Periclean Athens, where dedicated men (Bob Rubin, Larry Summers, Clinton, himself) made decisions in the nation's long-term interest.

NY Times

He praises President Bush for letting the Federal Reserve stay independent of political pressure, saying he was scrupulous in not trying to interfere with monetary policy — which he contrasts sharply with the pressure exerted by his father, George H. W. Bush, in the early 1990s. For years the first President Bush has blamed Mr. Greenspan for contributing to his defeat in 1992 by failing to prevent a recession by cutting interest rates.

Of the presidents he worked with, Mr. Greenspan reserves his highest praise for Bill Clinton, whom he described in the interview as a sponge for economic data who maintained “a consistent, disciplined focus on long-term economic growth.” It was a presidency marred by the Monica Lewinsky scandal, he writes, but he fondly describes his alliance with two of Mr. Clinton’s Treasury secretaries, Robert E. Rubin and Lawrence H. Summers, in battling financial crises in Latin America and then Asia.

By contrast, Mr. Greenspan paints a picture of Mr. Bush as a man driven more by ideology and fulfilling campaign promises made in 2000, incurious about the effects of his own economic policy, and portrays an administration incapable of executing policy. Mr. Greenspan describes the Bush administration as so captive to its own political operation that it paid little attention to fiscal discipline, and he described President Bush’s first two Treasury secretaries, Paul H. O’Neill and John Snow, as essentially powerless.

Mr. Bush, he writes, was never willing to contain spending or veto bills that drove the country into deeper and deeper deficits, as Congress abandoned rules that required that the cost of tax cuts be offset by savings elsewhere. “The Republicans in Congress lost their way,” wrote Mr. Greenspan, a self-described “libertarian Republican.”

“They swapped principle for power. They ended up with neither. They deserved to lose” in the 2006 election, when they lost control of both the House and Senate.

This book has two halves. The first, an engaging two-decade look at his term as Fed Chair. Not to be missed, he lays out with candor and verve, how he used the power of the Federal Reserve, growing stronger and more assured with practice, to lead up to the strongest peace-time expansion of wealth and prosperity the world has ever known. Genuinely fascinating stuff.

The second half (more like a third) of the book, is Greenspan's "foundation on which to erect the conceptual framework for understanding the new economy." Oh yeah baby. Do me. Do me hard. [That was my imitation of Greenspan attempting snark. Um, never mind. The last part's boring as hell unless you're a market nerd, okay?]

Markets trembled when this man sneezed. He's 81 and still can bring heat right over the plate:

"They swapped principle for power. They ended up with neither. They deserved to lose."

*sighs*

Greenspan always did leave people, markets and heads a-spinning. Perhaps that's why he called his book, the The Age of Turbulence?

Serve it up Mr. Greenspan. Take us for a ride. Recommended.

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I'm Top of the Food Chain. You're Dinner.

Economic Roundup

Countrywide Financial Corp announced Friday cuts of 20% of its workforce, all in production.

Countrywide Letter to Employees

Unfortunately, the only way to accomplish this is to make significant reductions in our workforce which we estimate to range between 10,000-12,000 employees (which includes reductions that we have already made). As of July 31, Countrywide employed more than 61,000 people. The areas primarily affected will be our production divisions, and the general and administrative support areas of the Company. Areas which we do not expect to be materially impacted by workforce reductions include our banking operations, our insurance businesses and our loan servicing operations, each of which are expected to continue growing in both the short-term and long-term. As noted above, the distributed retail unit of our Consumer Markets Division will continue to aggressively grow its sales force while adjusting its expense structure to the new reality of the marketplace.

Yes. Because the fastest way to profitability is to slash support while ramping up sales. Doesn't matter if no one can actually service the accounts of take care of the work. Just sell sell sell.

Shares of Countrywide rose 19 cents to $18.40 in after-hours trading.


Mortgages.

I've got one. Probably you do also. Thought I understood them. Turns out, not so much. Want to begin to understand the current banking mortgage crisis?

READ Mortgage Origination Channels for UberNerds, from my favorite financial blog, Calculated Risk.

Long, tricky to get through in spots, but I learned more in ten minutes than...well, just go read the bloody thing. Consider it background for owning a home. (I skipped the truly hard part in the middle. Shhh.)


Michael Lewis

The author of Moneyball (wonderful; you'll love the book) brings his own unique take on the sub-prime crisis. *grins*

Yes, it's satire people. Really.

Michael Lewis

A Wall Street Trader Draws Some Subprime Lessons: Michael Lewis

Sept. 5 (Bloomberg) -- So right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.

Don't get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It's not personal when a guy cuts your grass: that's business. He does what you say, you pay him. But you don't pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn't allow to invest in my hedge fund.)

That's the biggest lesson I've learned from the subprime crisis. Along the way, as these people have torpedoed my portfolio, I had some other thoughts about the poor. I'll share them with you.

Absolutely worth reading all of. Trust me. I laughed till people came over and asked me why I was laughing so hard. Then they looked at me funny.


See that big brown bear at the top? Go ahead, click on him and watch him get REALLY BIG. He's from the San Diego Zoo. Nice bear.

The bear has you pegged as dinner. So do the big lending companies. Watch your back.

Start by learning the vocabulary. Which means read Calculated Risk. If your company offers a 401K at least put in up to whatever your company matches, otherwise you're simply throwing away money. Which would make you a sucker. Pay off your credit card debt. Convert your ARM into a fixed if you possibly can, even if it hurts. Pay cash or go with out. Like our grandparents did. Short term pain, long term gain. Big bear.

Tough times are coming. The administration has wrecked the economy; now they're going to run for cover and leave it for the next crew to clean up their mess. They could give a damn about you and neither could the financial companies who hold your markers.

Either the bear eats you or you...well, if not you eat the bear, at least you stay the hell out of its reach.

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Bush Moves to Aid Homeowners

WASHINGTON -- President Bush, looking for ways to respond to the subprime-mortgage crisis, will outline a series of policy changes and recommendations today to help borrowers avoid default, senior administration officials said.

-- Wall Street Journal

Oh, this ought to be good. Bush can 'help out' in the same way he has helped in NOLA. God help us all.

In another move, Mr. Paulson and HUD Secretary Alphonso Jackson have instructed their staffs to begin working with mortgage lenders and others to identify borrowers who are in danger of defaulting. They also are trying to work with private lenders and mortgage giants Fannie Mae and Freddie Mac to develop loans for borrowers who will likely face default if they can't get more flexible terms.

This mortgage thing must be really bad, if Bush is having to do something, and in August...

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Atrios is so shrill

Advantage: Me!


Disadvantage: Democrats, the country, etc. Me, back in March:

I do hope Democrats show the foresight to get out in front of the looming mortgage crisis.

   -Atrios

One does wonder why the Democrats see nothing coming, ever.

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