Volatility

August 18, 2010

Fannie and Freddie to Stay the Course (As if the Bailout allows any other)

Filed under: Bailouts Only Propped Up Zombies — Tags: — Russ @ 2:55 am

 

Yesterday’s GSE hearing came and went with nothing special happening. There was no confirmation of earlier rumors that the system would order a mortgage rate reduction.
 
Instead it was status quo all the way. Geithner affirmed the government’s commitment to reflating the mortgage bubble and keeping housing prices artificially high.
 

Rather, Mr. Geithner — and the conference after his remarks — focused largely on drafting a new and improved version of the current system, in which the government subsidizes mortgage loans made by private companies.

Mr. Geithner said continued government support was important “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.” The absence of such support, Mr. Geithner said, would deepen future recessions because unsubsidized private companies would curtail lending.

 
There were the same old lies about how inflating a bubble and then using the mechanism of the GSEs to provide lower-cost mortgages represents some “progressive” outcome.
 

The administration is still considering these and other options. The choice will reflect in large part a judgment about how hard the government should try to increase homeownership. Broader guarantees create greater risks for taxpayers, but also lower interest rates, bringing ownership within reach for more families.

Shaun Donovan, the housing secretary and a host of the conference with Mr. Geithner, said that the administration remained committed to “broad access to homeownership, including options for those families who have historically been shut out of these markets.”

 
Think about the double artificiality and manipulation here: first the banks use government to inflate a bubble, and then they use it to provide market access at prices which are artificially low over the short run. (Of course, as with any heroin dealer giving away a free sample, they intend to make you pay in the end.) So it’s a double affront to reality.
 
Reality, of course, wants to and will deflate. Housing prices remain far above their historical level, far above any relation to the real economy. But the bubble is a primary rent mechanism for the banksters, and MBS generation and price support through the GSEs is a primary vector of the Bailout. So conscripted public support for the bubble (and for the zombie banks’ balance sheets) will continue via the GSEs. Geithner simply reaffirmed this. (Meanwhile, the posturing of Republicans and other alleged fiscal responsiblists is just posturing; they’re all lying when they imply they want to let housing markets discover reality-based prices. To say “let the private sector take it over”, while implying that asset prices could still be sustained this way, is imbecility. There is no private market for housing, not at anything near these bubble prices.)
 
The NYT does what it can to help with the fraud. In the very first sentence it gives a particularly deceptive version of the two-extremes-truth-in-the-middle lie:
 

The Obama administration has been barraged with ideas for reworking the government’s role in housing finance, spanning the spectrum from guaranteeing all mortgage loans to eliminating all federal subsidies for homeownership.
Treasury Secretary Timothy F. Geithner, speaking Tuesday at a conference to discuss the possibilities, made clear that the administration was not pondering such radical kinds of surgery as it develops a proposal it hopes to unveil in January.

 
Of course, “guaranteeing all mortgage loans”, what the piece calls a “radical” extreme, is in fact exactly what we have and what the NYT wants to help perpetuate. (All loans are either explicitly guaranteed or receive the implicit Too Big To Fail guarantee.) So now they’re reaching the realm of de jure lies of fact itself, and not just of truth.
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13 Comments

  1. TBTF is the status quo default of TRTR’s (too-random-to-regulate) flawed governance structure that conflates risk and uncertainty.

    Comment by Stephen A. Boyko — August 18, 2010 @ 11:09 am

  2. TBTF conflates risk and uncertainty as zero, since they’re socialized on the people. (Of course the recklessness this engenders increases the systemic risk and uncertainty to monstrous levels.) Though I don’t see what’s random about the corruption.

    Comment by Russ — August 18, 2010 @ 3:42 pm

    • Giving renters property rights via no-money down, liar loans created vapor assets like S&L “goodwill”. These securitized MBS lacked positive cash flow and were randomly discovered as bogus when mark-to-model assumptions proved flawed during Minsky moment (i.e. Lehman)

      Comment by Stephen A. Boyko — August 18, 2010 @ 5:21 pm

      • I still find it hard to believe anyone was stupid enough not to know all this stuff was bogus all along. The Bear hedge funds knew what they were doing, as their e-mails prove. And everyone was horrifed when Merrill wanted to respond by selling securities. Everyone knew letting price discovery take place would find the real price near zero.

        And while the system’s response as the collapse evolved seems to have been disorganized and ad hoc, it doesn’t seem to have been random.

        Why were the GSEs and then AIG bailed out but not Lehman? The best answer is that the former was part of propping up the bubble in itself (the primary goal), the latter was directly to benefit Goldman (the best connected racket), while Lehman didn’t have Goldman’s connections and was a hated competitor, and the system thought they could let Lehman go without mortally compromising the whole structure.

        Indeed the predictable reaction on the part of the terrorist stock market was probably seen as a plus, as it gave shock doctrine cred to the Bailout going forward. “We now know we have to bail out everybody, otherwise the market will press the button!!”

        Comment by Russ — August 19, 2010 @ 5:13 am

      • @ Russ
        @ reslez

        Thank you for your input

        Comment by Stephen A. Boyko — August 21, 2010 @ 4:59 pm

      • You’re welcome, and thanks for the discussion.

        Comment by Russ — August 21, 2010 @ 5:32 pm

  3. @ Russ

    Good points! We are now starting to drill-down “randomness” that ranges from:

    • “Uncertainty” where the underlying issue lacks positive cash flow and is marked-to-model,

    • “Probability” where the underlying issue has positive cash flow and can be marked-to-market, and

    • “Predictability” where price discovery is formulaically determined with near-metaphysical certainty.

    Given that you “still find it hard to believe anyone was stupid enough not to know all this stuff was bogus all along. … Everyone knew letting price discovery take place would find the real price near zero.” Therefore, is “the real price near zero” a proxy for:

    1. “Uncertainty,” in which case what is your standard for, scienter—a legal term that refers to intent or knowledge of wrongdoing. This means that an offending party has knowledge of the “wrongness” of an act or event prior to committing it (p.12-13 “We’re All Screwed”). Given your “bogus” comment can you prove a fraud case against the broker, but how do you know in an inherently unknowable economic environment; or

    2. “Predictability” as in US money market instruments when the US’ credit rating was a legitimate AAA rating. Given the lack of creditworthiness of securitized no-money down, liar loans, can you prove a disclosure and/or suitability case against the broker regarding investments that were something less than “predictable AAA-rated?”

    This is why I argue against a one-size-fits-all, deterministic regulatory regime where TBTF is a flawed default position for those confronted with TRTR—to-random-to-regulate market activity.

    Comment by Stephen A. Boyko — August 19, 2010 @ 3:59 pm

    • I’m certain that all this gambling is both worthless and destructive. So it’s objectively criminal.

      As for the conscious criminal intent of the existential criminals, that doesn’t really matter, since anyone too stupid or deranged to “know what he’s doing” still should have known, and has no right to be ignorant of the real nature of such aggressive behavior.

      But I think on the whole they consciously understand as well. After all, post-crash they’re all still committing the same crimes and resisting re-regulation, aren’t they?

      So that right there definitively proves their conscious intent, which supplements their objective criminality.

      As for the technicalities of the rigged laws, these are insufficient by design to deal with this magnitude of crime. That’s why, for this similar situation, we need a new Nuremburg tribunal. Conventional law isn’t cut out to deal with this level of organized crime.

      Is that too one-size-fits-all? But it’s clear that “all” the finance sector’s speculative and casino activity, of whatever size, has only one quality: worthless and destructive.

      Comment by Russ — August 20, 2010 @ 3:20 am

      • @ Russ

        Russ: I’m certain that all this gambling is both worthless and destructive. So it’s objectively criminal.

        1. Question: Is gambling different than speculation? If not, where is the bright line that differentiates the two? If they are the same, where is the gambling disclosure in the securities regulations?

        Russ: As for the conscious criminal intent of the existential criminals, that doesn’t really matter, since anyone too stupid or deranged to “know what he’s doing” still should have known, and has no right to be ignorant of the real nature of such aggressive behavior.

        2. Question: If you are saying protection is a racket, whether done by the government’s Don Columbia law school or the mob’s Don Corleone, we agree. But why then the push for Ms. Warren at the CFPB? Would you be in favor of qualifying investors?

        Russ: But I think on the whole they consciously understand as well. After all, post-crash they’re all still committing the same crimes and resisting re-regulation, aren’t they?

        3. Question: Anti-fraud and disclosure regulations were part of the original governance regime of the 1933 Securities Act and 1934 Securities Exchange Act, where is the enforcement?

        Russ: So that right there definitively proves their conscious intent, which supplements their objective criminality.

        4. Question: where is the proof to your allegation? Either all the facts were not disclosed or the facts were wrong. You pick, and then prove.

        Russ: As for the technicalities of the rigged laws, these are insufficient by design to deal with this magnitude of crime. That’s why, for this similar situation, we need a new Nuremburg tribunal. Conventional law isn’t cut out to deal with this level of organized crime.

        5. That’s the same argument that was made for Sarbanes-Oxley (SOX). Where’s the beef? Or benefit? Trust me; there is no shortage of either securities law or securities attorneys. If there is some structural deficiency, please define and describe.

        Russ: Is that too one-size-fits-all? But it’s clear that “all” the finance sector’s speculative and casino activity, of whatever size, has only one quality: worthless and destructive.

        6. Now we are getting to what I believe to be the crux of the matter. It is not “size,” but “randomness” of the underlying economic environment that needs to be addressed by segmenting the one-size legacy system into predictable, probabilistic, and uncertain regimes. If you feel otherwise then prove the allegation of either non-disclosure or fraud.

        Conclusion: The more things change, the more they stay the same. Adding rules, such as SOX, to a flawed structure does not provide best-practice governance.

        Comment by Stephen A. Boyko — August 20, 2010 @ 10:12 am

      • 1. They mean the same to me. I just vary the terms. Vive la difference.

        2. Who’s pushing for Warren? Neither the criminals nor me.

        I specifically called it a scam right here:

        https://attempter.wordpress.com/2010/07/17/finance-reform-sham-cfpa-sham-secgoldman-sham/

        3. Exactly where their masters want it to be, delinquent.

        4. My proof is that they’re continuing with the same actions, including robbery in the form of “bonuses” and accounting fraud to justify those robberies, even after being bailed out.

        Even if you’re capable of believing they were innocently mistaken pre-2007 (I’m sure not), there can be no doubt in the Bailout era. They’re now fully conscious.

        5. Most of these frauds are technically legal. The TARP at least was “legalized”, and I imagine the Fed’s world-historical embezzlement, the vast money laundering scheme through the GSEs, and the maintenence of the TBTF premium, just to name a few, are all legal.

        (Well, they probably violate the PCA law, but everyone seems to have agreed that doesn’t exist.)

        The only major crime where I’ve seen any question about the technical legalities is the AIG money laundering scam.

        6. Sign me up for restricting legal finance activity to your realm of “predictability”. The rest can go to the sewer where it belongs.

        Comment by Russ — August 20, 2010 @ 4:02 pm

      • @ Russ:

        Let’s focus on “restricting legal finance activity to your(“the”) realm of predictability.”

        I argue against the conceptual flaw that uses determinate regulatory metrics for uncertain investments. Markets are complex adaptive systems that have non-linear, dynamic properties see (http://en.wikipedia.org/wiki/Complex_adaptive_system).

        If there is complexity, there is uncertainty. As there are innate complexities in the capital markets, the element of uncertainty always will be a part of complex adaptive systems. If there is innovation, there is uncertainty (see http://readingthemarkets.blogspot.com/search?updated-max=2009-10-15T06%3A23%3A00-04%3A00&max-results=7 ). Thus, innovative software iteration 2.1 was written because of unforeseen circumstances experienced with version 2.0.

        Please tell me how you can govern indeterminate investments with deterministic metrics? Unless you segment market governance into predictable, probable, and uncertain regimes, you create the unintended consequences of category errors from non-correlative information that results in larger and more frequent economic dislocations.

        By limiting governance to the “predictable,” you are advocating the governance mistakes about which you complain. Misspecifying the underlying economic environment solely as “predictable” employs improper or limited regulatory tools (i.e., SOX and Dodd-Frank) that enable the financial oligarchs to free-ride.

        Comment by Stephen A. Boyko — August 21, 2010 @ 8:51 am

      • It seems that you’re a reformer and you mistake me for another reformer. But I’m not. I want to eradicate financialization completely.

        So I’m unable to give answers to these questions which are satisfactory to you because I regard them as unanswerable in my terms. It’s clear to me that reformism is always doomed to fail.

        Even if by some miracle a real reform measure were enacted, and we started out with good faith regulators who combined the hero and the saint within themselves, the rackets would still simply wear that system down by attrition and eventually corrupt it, as they have in reality.

        Even if it were possible to recover Glass-Steagal, repeal the CFMA, make the CFPB an independent regulator and install Warren in it, and the rest of it; or if you were given carte blanche to set up the regulatory regime you think would work, that would still just end up cycling back again to where we were ten years ago. I’m not willing to keep cycling through history like that.

        It’s clear that we’ll never have peace, justice, or stability until the finance rackets are destroyed completely.

        That’s what I meant by setting up a regime of “predictability”, and as you said something approaching metaphysical certainty.

        My metaphysics is the transformation I just described.

        Comment by Russ — August 21, 2010 @ 9:36 am

      • But why then the push for Ms. Warren at the CFPB? Would you be in favor of qualifying investors?

        I’d argue you’re confusing the racket’s victims with the racket. Consumers are powerless to do anything but consume what the racket puts in front of them. It’s only when they reject their role as consumers that they have any power. CFPB is a sideshow, but to the extent it helps people wake up it could have a use. If you’re referring to small-time “investors”, they’re merely people who have drunk the Kool-Aid themselves and are trying to get in on the scam.

        We already have a corrupt and unwieldy regulatory apparatus. Adding additional layers of complexity will only make it more corrupt and more unstable, to the financiers’ benefit. You cannot plaster over a structure which is fundamentally rotten.

        Comment by reslez — August 21, 2010 @ 4:21 pm


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