Why are they doing this? They certainly aren’t saying much; simply, “We don’t owe anyone an apology due to the rapid changes in the financial markets and priority need for the bailout funds”. Ok, I’ll buy that – even though I would not have a choice otherwise. I think there is some hidden good news in this new path and the government is simply not ready to share it with the world just yet. But why? Because it would add additional confusion and debate as to why there was a bailout in the first place. I still agree that this action was absolutely necessary and the financial markets would have crumbled without it (a lot more than it already has). It now appear that there are a few new priorities for the money – or is it a matter of the “original priorities” are, all of a sudden, not as serious? I think it’s both, but let’s start with the later.
I believe that with the new challenges facing the auto industry and the enormous potential for further increases in unemployment if this sector fails, coupled with an additional punch to the consumer, the government is being very mindful of where to utilize the bailout funds. More interesting, however, is that the Treasury, in its investigations of what mortgages to buy and from what banks, has found that the banks themselves are efficiently selling these assets at a break-neck pace to the private sector. And furthermore, the capital providers / buyers of these assets have built sophisticated production systems to aid in the organization and completion of the secondary transaction on the back-end – be it a refinance, Note modification or principle reduction of the mortgage, it seems to be working very well.
How do you deleverage a bank? The concept is simple, but harder to actual put into practice. When a bank has too many loans on its book in accordance with its assets – you either need to raise capital (good luck in this market) or sell loans. I think the Treasury and the Fed recognize that both need to happen in tandem – and the selling is already taking place at a faster pace than they expected – or could ever compete with. So why not use the funds to help capitalize the banks to aid in the “priming of the pump”?
This also gives the government more available funds to bail out other industries – like the auto industry. No, I am not a fan of this idea and it is troubling that it will occur. There is no stopping it now, but we can hope that they are smart enough to fix the massive ineptitude in the auto industry’s management and the screwed up union contracts. But where does it end? I really have no idea – and it is becoming more and more difficult to predict what is really going on out there.
I have had the great fortune to have connections and friends throughout the world that have shared a lot of facts that simply are not making it to the media. I personally think it is getting better – and by leaps and bounds. It will take some time for this to bleed into the stabilization of the economy, housing, employment and the eventually benefit the consumer – there’s simply too much settling and work to be done at this time. However, the bottom is nearing and when it is upon us there is a sizable enough economy to witness growth and prosperity.
May the ideas of capitalism still shine on
2 responses so far ↓
1 Tim Hoelle // Dec 27, 2008 at 6:12 am
I like your optimism, and also appreciate the thought you put into your prior blog. I’m not in the mtg industry and as a “consumer” and RE investor I have to say I’m much less optimistic, at least about the immediate future. I would feel much better about where we could go if the decisions were not being made by politicians mostly concerned with perqs, public reaction, image and of course re-election.
I’d love to believe that there is a “better” use of the “bail out” money, but as a partner to an individual who can’t get access to equity they’ve worked hard to acquire, there simply isn’t a better use. Yes, the auto industry is important, and the insurance industry and every other industry, but one of the issues for the consumer is that they/we have lost confidence in people.
After all, people run all of these companies, and there’s very little trust or respect for those that are making decisions. I realize that many business owners are good people doing their best, but the dregs of the business world who lie, cheat and otherwise look out for themselves are ruining it for those that have their ethics in tact. And that crashing sound you hear isn’t going to stop anytime soon. I’m sure you know about Alt A loans and other “exotic” versions that are just now falling apart en masse.
I’d prefer you maintain your fervor and personal crusade evidenced in your prior blog. I’m hoping you didn’t go from very passionate and sold out for your “Obvious Solution” to resignation that your comments don’t apply any longer. Seems to me that your network of PRMI could forward your comments to state legislatures and all media outlets in 47 out of 50 states. (And I’m sure with 1300 or whatever number of employees someone must know a relative or business partner in the other three states).
You may be on to something but unless you follow through with it there’s little chance anything can happen.
The slothful man roasts not that which he took in hunting: but the substance of a diligent man is precious. Proverbs 12:27 (King James Version)
2 Dave // Dec 30, 2008 at 11:04 am
Tim,
I loved your reply and I appreciate you calling me on the table in some respects. The issue is not related to “giving up”, but more about the fact that I have had a rare opportunity to be involved from a production standpoint to aid banks and hedge firms in the refinance modification of billions of dollars worth of A credit paper, written down due to S.O. Act / GAAP regulations, and now the banking institutions are raising cash to aid in the de-leveraging process – and it seems to be working! At one point, the Treasury and the Fed, when addressing the banks to purchase said assets, were met with resistance by the very banks themselves – banks delivering the message that the private sector was efficiently purchasing these assets at a more lucrative price than the government was willing to pay. The Treasury and the Fed then realized that they had a better opportunity to help the de-leveraging process by working with the private sector in tandem by purchasing preferred stock, thus aiding the balance sheet on the other side. The two components are proving to work and the com-paper market has been improving by leaps and bounds. In addition, the governments current action to buy MBS’s, artificially creating demand in this bond arena is aiding the improvement of the MBS prices – bringing down the massive spreads recently witnessed between MBS and Treasuries. The result is 50-to-60 year low 30 yr. fixed mortgage rates – which is exactly what I was calling for in one half of my “obvious solution” campaign. The group of loans / products that have zero choices are still dealing with very high rates and will, no doubt, continue to plague the real estate market. However, the recent actions and the recent reports are suggesting that we are headed in the right direction (overall – on a macro scale) – and I, myself, am a lot more optimistic than I was in the beginning of this mess. My hat is off to Ben and Hank – I simply believe that without them and the action taken, we would all be living in Hoovervilles.
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