May 01, 2008
I've got gas (tax relief) like a mother!
So, Sen McThuselah proposes a gas tax holiday during the summer without proposing any way to pay for it. I know. It IS rather shocking that I've already given up on calling him Olden Times. I blame the media. And Hillary. Speaking of, she decided to AGREE with McThuselah about the gas tax holiday.
But wait... before you jump all over her for bad economic policy, at least she bothered to pay for it. That's a huge step up from McThuselah who apparently thinks his road to the White House should be paved with promises of FREE MONEY (cue Matthew Lesko). Of course, a gas tax holiday is just going to end up in Exxon's quarterly dividend (that's when GIANT oil companies send shareholders, the owners, some of the profit. It's one of only four times a year my father smiles) which kind of mitigates that whole 'we're helping people thing' since the savings won't, you know, be passed on to people.
Pandering? Yes. An empty gesture? Absolutely. Should they be focusing on this or this? Sure... well, that is, if you wanted to actually mitigate the economic costs of high fuel prices and stop using food to make fuel.
Meanwhile, Clinton and McCain criticized Obama for not going along with their little scheme.
Would someone please tell the Clinton folks that Obama is right? That'd be great! And then, could you fire the idiot on her policy team that keeps copying shit McCain does? It's embarrassing to those of us who, you know, SUPPORT HER.
Posted by mcblogger at 08:41 AM | Comments (0) | TrackBack
March 24, 2008
Take this 2,000 acre development and shove it!
Let me preface this with the fact that I like development. Not just new construction or renovations of existing buildings, but economic development. I especially like the kind that promises to create a massive number of jobs in our community. There is, however, one thing that'll make me turn into a zero growth nut. That's when developers come 'round asking for tax breaks and abatements and claiming that it's the only way they can bring their project to Austin.
Really? Do you want a virgin to consummate the deal as well?
Seriously, this crap about Villa Muse is about as retarded as I've ever seen. First off, the developers are taking over 2,000 acres in a developing area of Travis County, which just happens to be part of Austin's ETJ. What the developers want is to have that removed from taxation and zoning requirements, effectively reverting the land back to county control and keeping it from being annexed by the city. Not to mention that it would keep it out of city environmental oversight, which is exactly why the city shot down the proposal.
Some council members said the city could not be guaranteed that it would be able to eventually annex the property even if the developers signed an agreement. Leffingwell and Kim were also worried about the lack of environmental oversight of the floodplain remediation that would be necessary and the proposed construction of the studio so close to Gilleland Creek.
All this, of course, has Dawnna Dukes all upset...
Dukes wrote that Villa Muse would have been a “once-in-a-lifetime opportunity for the Central Texas area, especially Eastern Travis County.”“Your decision to deny the temporary release of Villa Muse from the city’s Extra Territorial Jurisdiction takes certain financing options off the table, thus making the project financially unfeasible” and probably ensuring its relocation to a different city, she wrote.
Dukes said she questioned whether environmental concerns were the real reason the council members decided refused to support the project, given that the council is considering building a landfill and wastewater treatment plant in Eastern Travis County.
She asked the council members to reconsider their decision: “This project will succeed somewhere in Texas. It would be ideal to have it here.”
First off, Dawnna, it's a mixed us development not unlike The Domain whose developers WERE able to talk the city into questionable tax breaks(which folks are even now trying to get rid of). Therefore, it's nothing special. Oh, there's the 70k seat amphitheater that's a huge risk in a town where people will squeeze 100 per square foot into some shitty club to hear some shitty band play shitty music.
And you're wrong, Dawnna. This project will only really succeed here. There really aren't too many other areas of Texas where this can succeed. Maybe in Irving and if the developers want to pick up and move to the artistic hotbed of Irving, they are more than welcome. Have at it, fellas!
As for the project being financially unfeasible, you wouldn't know if it was or wasn't, Dawnna. If their margins were soooo thin that only a tax break put them into the black, then this is really a blessing in disguise. The City Council just saved us from another nightmare because if their finances were THAT flimsy, odds are the developers would have gone bust during construction. Three strikes of stupid on this, Dawnna...
1) You chastise people who clearly have a better understanding of this than you.
2) You fight hard for developers with questionable financing (and who, by the way, was underwriting this package? USB? Lehman? Southwest?).
3) You talk about tax abatements as if they're some sort of economic panacea (which they aren't).
Needless to say, this or something like it is going to happen in this area with or without the wonderful developers who've given Dawnna so much over the years. The developers, for their part, are of threatening to take their toys and move on...
The backers of a proposed entertainment studio and production facility in eastern Travis County say they are negotiating with other Texas cities to move the project after Austin officials refused to temporarily release the project from its regulatory grasp.Villa Muse Vice President Paul Alvarado-Dykstra would not reveal which other cities the developers are negotiating with but said there was more than one and all were in Texas.
"We haven't closed the door on Austin, but we kind of feel like Austin closed the door on us last Thursday," he said.
Ahhh... so long, fuckball. Try playing your financial shell game with a muni that's controlled by short sighted stupid people.
And here, my friends, is why I'm supporting Jennifer Kim for re-election...
Last week, state Rep. Dawnna Dukes, D-Austin, who represents the area, sent a scathing letter to Mayor Will Wynn and Council Members Betty Dunkerley, Jennifer Kim and Lee Leffingwell, all of whom voted against the release.Kim and Leffingwell said they were not surprised by the developers' decision to pursue other locations and are not inclined to revisit releasing the land anytime soon.
"It is unfortunate that they are not going to locate here, but we need to make sure that we are protecting our environment and our quality of life," Kim said. "In this case, we couldn't assure that to our constituents."
Translation... you aren't going to get something for nothing. If you want play in Austin, you have to pay just like everyone else. Either that or we'll steal your idea and do it ourselves.
We're mean like that.
Last point then I promise I'll move on to something exciting, the people who really get screwed with abatements are the existing property base. See, development needs infrastructure and services. Even if the developer is paying for the internal roads, power grid and water/wastewater systems, the external hookups will have to upgraded and city facilities will have to be ungraded to take care on the additional burden. That costs money and frankly I don't think any of us mind paying it.
As long as the new development starts paying taxes just like the rest of us. If not, then you're wasting our time and our money. Come back when you have have the wherewithal to do things the right way.
Posted by mcblogger at 10:59 AM | Comments (3) | TrackBack
March 23, 2008
Just in case you were wondering...
... this is the kind of housing you can get for $6 mm. At least, according to the NYT.
Or you could just buy 15-20 houses in my 'hood.
Posted by mcblogger at 08:04 AM | Comments (0) | TrackBack
March 18, 2008
Perception is reality
Take a balance sheet weakened by the non-marketability of assets on it. Add in doubts from counterparties and an unwillingness to take the other side of a trade to, for example, assume interest rate risks. Combine with client uncertainty and top it all off with the loss of access to the critical commercial paper market (the financial lifeblood of all the large non-depository banks) and you have the perfect financial storm that destroys an investment bank.
That, in short, is what happened to Bear Stearns. Was Bear in trouble? Sure. The fact that the company made some horrendous bets on some very toxic MBS, mostly filled with Alt A and Sub-Prime credits. Then they dumped them into CDO's, in which interests were sold to investors. Just to add another layer of risk, they then borrowed heavily against the shit credits in the CDO to, wait for it, buy still more shitty credits to juice the return. The CDO could borrow cheaply so the spread income was very good and helped Bear come in with extremely good profits. As long as no one doubted the value of the credits in the CDO. When those became unsaleable, creditors called loans and there was a run on the bank.
And that last bit is what killed Bear. You can't pay off $100 Billion in loans with $20 Billion in equity, for example. If you can't float that $100 Billion with constant funding, you're effectively bankrupt. Well, that's actually putting it mildly. You're a cautionary tale. The fact that the assets you've acquired with that debt are worth less than 1/10 what you paid just seals the deal on the tragedy.
Though the underlying event was different, something very similar happened to Salomon Bros. in 1991. Then, a white knight was able to step in, restore confidence and, by extension, the funding. No such luck this time with JPMorgan Chase. The only question that remains is were their actions deliberate. Consider this...
The swiftness of Mr. Dimon’s decision to buy Bear is remarkable given that he has not been an aggressive acquirer since he joined the firm after selling it BankOne, where he was chief executive. He has cautioned patience about making acquisitions, though he had suggested in recent months that the firm might be ready to make a major deal.Earlier this month, the co-chief executive of JPMorgan’s investment bank, William T. Winters, said on a conference call with investors: “If a special opportunity came up to acquire a prime broker at a decent return, we wouldn’t hesitate. We’ve always said, ‘Boy, if there was one for sale, we’d love to look at it.’ ”
A deal needed to be reached quickly to protect the business from collapsing entirely. With most if not all of its clients stopping trading with the firm, its days were numbered.
One has to wonder if maybe the crisis of confidence was, if only in part, exacerbated by JPMC. Of course, we'll probably find out. That's what lawsuits are all about.
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March 10, 2008
Bernanke, Congress, The NYT and new real estate
The NYT has an op/ed piece congratulating Bernanke for suggesting that Congress act to give Bankruptcy judges the ability to reduce principal balances on outstanding mortgages. It's an interesting idea. It's also completely unnecessary and will cause a lot more harm than good.
First off, the market for housing is a very delicate balance of forces and in that balance lies the value of a property. Part of what's killing people in many neighborhoods is NOT that they've lost equity, it's that their neighbors though bad financial planning and decision making, have been forced to 'give up their homes' creating a foreclosure in the immediate vicinity that, by virtue of being a comparable, ends up decreasing the value for all the homes around it. It's financial collateral damage and Bernanke's plan doesn't really address it. That the NYT can't see it is largely unsurprising given their lackluster reporting on this and the effect it's having.
Second, the market for new originations (buyers who need mortgage financing) will be made vastly more expensive because what's being packaged and sold to investors is no longer a sound and safe instrument, it's a financial timebomb which can be modified (against it's owner) by the government at will. So much for the rule of law and the sanctity of contracts.
What needs to happen and what we've been clamoring for is stabilization. What's driving foreclosures is the ADJUSTMENT of an adjustable rate mortgage. This means that consumers have been able to make a payment at a high interest rate... what they are having problems with is the payment when the rate jumps from 8% to 12%. That's a little tough to take. Reducing them balance still leaves them in a high interest rate loan. Wouldn't it be better to refinance them to a lower interest rate at which they can afford to comfortably make the payment on the full principle balance? Dropping the principle balance will help, but it shorts the investor who owns the loan, which makes it unlikely they'll invest in any more mortgages which will, in turn, drive up borrowing costs for Americans across the board.
Why not a program that saves investors AND homeowners (investors by giving them full value on their securities and homeowners by taking them out of an expensive loan)? We've got it and Congress has, apparently unbeknown to the NYT, already taken the first step...they've increase the FHA loan limits. With guidelines tightening for even loans backed by FNMA and FHLMC, more and more loans will start being originated as FHA insured loans. Currently, in Travis County for example, the loan limit was just enough to take a large chunk of the market. Increasing it by almost 50% will help stabilize the market, keep buyers in and allowing those in trouble to hopefully refinance.
The other is to modify FHA Secure to indemnify lenders and broaden the guidelines to cover the more than 2 million homeowners at risk. Instead of the max of 80k under Bush's retard program.
Finally, the market has not responded to the stimuli pushed through by Congress and the Fed. Bank's are still too scared to act, bond insurers are on the brink of insolvency because of their inability to get ANY capital at ANY price. The market is, quite simply, not working and it's the ultimate weakness of Reagan-/Friedman-/Bush-onomics... fear in a market can become reinforcing and in the end, it's the very thing that kills the entire market and spurs a recession or, worse, a depression. The only way it gets fixed is for the lender of last resort to step up and let even the financial masters of the universe know things will be OK.
Finally, in other news, some new real estate has been 'theorized'.
Posted by mcblogger at 10:54 AM | Comments (0) | TrackBack
March 06, 2008
Silicon Valley turns to the sun
Want to know what the next big technology trend sweeping the venture community is? Click here.
Given the valley’s tremendous success in recent years with such down-to-earth products as search engines and music players, tackling solar power might seem improbable. Yet some of the valley’s best brains are captivated by the challenge, and they hope to put the development of solar technologies onto a faster track.There is, after all, a precedent for how the valley tries to approach such tasks, and it’s embodied in Moore’s Law, the maxim made famous by the Intel co-founder Gordon Moore. Moore’s Law refers to rapid improvements in computer chips — which would be accompanied by declining prices.
A link between Moore’s Law and solar technology reflects the engineering reality that computer chips and solar cells have a lot in common.
“A solar cell is just a big specialized chip, so everything we’ve learned about making chips applies,” says Paul Saffo, an associate engineering professor at Stanford and a longtime observer of Silicon Valley.
Financial opportunity also drives innovators to exploit the solar field. “This is the biggest market Silicon Valley has ever looked at,” says T. J. Rogers, the chief executive of Cypress Semiconductor, which is part-owner of the SunPower Corporation, a maker of solar cells in San Jose, Calif.
Mr. Rogers, who is also chairman of SunPower, says the global market for new energy sources will ultimately be larger than the computer chip market.
“For entrepreneurs, energy is going to be cool for the next 30 years,” he says.
Optimism about creating a “Solar Valley” in the geographic shadow of computing all-stars like Intel, Apple and Google is widespread among some solar evangelists.
“The solar industry today is like the late 1970s when mainframe computers dominated, and then Steve Jobs and I.B.M. came out with personal computers,” says R. Martin Roscheisen, the chief executive of Nanosolar, a solar company in San Jose, Calif.
Remember when laptops weighed 10 lbs , had 7" screens and costs upwards fo $4,000? That's the stage we're at with solar right now. Just wait... give solar ten years and you'll see a similar trend.
Posted by mcblogger at 12:08 PM | Comments (0) | TrackBack
March 02, 2008
The oil may get low sooner than we think
For all the talk about drilling our way to energy independence, which is little more than than rambling by ridiculous little people with ridiculous little ideas, there is one inescapable fact. The well will always peak and from there on out that oil is going to get more and more expensive to the point of production costs going asymptotic, mostly because the reservoir pressure drops to the point where you are spending more and more to lift the next barrel of oil. It's happening in Mexico in the Cantarell field and in the Ghawar in Saudi Arabia.
The other inescapable fact is that as oil increases in value, those states that produce it will find themselves more and more affluent. And affluent people tend to become rabid consumers, especially when gasoline in 7 cents a gallon.
The economies of many big oil-exporting countries are growing so fast that their need for energy within their borders is crimping how much they can sell abroad, adding new strains to the global oil market.Experts say the sharp growth, if it continues, means several of the world’s most important suppliers may need to start importing oil within a decade to power all the new cars, houses and businesses they are buying and creating with their oil wealth.
Indonesia has already made this flip. By some projections, the same thing could happen within five years to Mexico, the No. 2 source of foreign oil for the United States, and soon after that to Iran, the world’s fourth-largest exporter. In some cases, the governments of these countries subsidize gasoline heavily for their citizens, selling it for as little as 7 cents a gallon, a practice that industry experts say fosters wasteful habits.
“It is a very serious threat that a lot of major exporters that we count on today for international oil supply are no longer going to be net exporters any more in 5 to 10 years,” said Amy Myers Jaffe, an oil analyst at Rice University.
The best part? Consumers in these countries care less about pollution than the rest of the world...
In Mexico City the other day, a bricklayer named Jaime Guerrero arrived at a local Chevrolet dealership. His extended family cried “bravo!” as he signed the papers for his first car.“To have a new car in my name is a dream transformed into reality,” said Mr. Guerrero, 26. He and his family piled in and weaved through the chaotic traffic of the capital, hunting for a priest to douse the car with holy water.
“I don’t worry about the climate or shortages of oil in the world,” Mr. Guerrero said. “I just worry if gasoline prices go up.”
Frankly, it's a little hard for me to criticize Mr. Guerrero because he's representative not only of people in Mexico, but of people in the US and around the world. Given that, it's damn time we give him a cheaper, cleaner, long-term alternative.
And just FYI, no damn interior decorator is going to do that. It's going to take someone like Dale Henry.
Posted by mcblogger at 11:34 AM | Comments (0) | TrackBack
February 27, 2008
GM and GIANT Hybrid SUV
This is it. The Yukon Hybrid. At best, this beast gets 22 miles per gallon. It's also $50k. Which is why GM will sell few of them and then moan about how the market really doesn't want hybrids.
Meanwhile, Toyota and Honda will sell every hybrid they can make.
Posted by mcblogger at 11:36 AM | Comments (0) | TrackBack
February 21, 2008
The controversy over who invented the telephone
Yeah, I thought it was A.G. Bell as well but as it turns out there are STILL questions. After 132 years. At least there are for people who spend an inordinate amount of time on mind numbingly boring historical minutiae.
Posted by mcblogger at 09:05 AM | Comments (0) | TrackBack
February 19, 2008
Paying for the nukes twice
The NYT has a great article up about all the nuclear waste that's piling up waiting for permanent storage. The cool part is that we paid for disposal of it with our electricity rates. The other cool thing is that we're going to pay for the delay in storing the waste with our tax dollars.
Cool, huh?
The only answer is to recycle the waste into plutonium and uranium and continue the fuel cycle. It's saves on uranium mining and gives us a long term solution since the wastes left over from the recycling usually have extremely short half-lifes, in some cases minutes or hours. Those wastes can then be vitrified into glass and they won't affect the water table in a long term storage facility.
What we have to do is get more comfortable with running reactors on plutonium. REACTOR grade plutonium, Ralph.
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January 09, 2008
Dodd : Two issues, one right and one wrong
Sen. Dodd has two items coming up this year, one is a reform of the horrendous 2005 Bankruptcy Act that made it extremely easy for lenders to foreclose on the homes of ordinary people, not to mention the millions with medical collections who would be forced to give up their homes should they be forced to file bankruptcy.
Let me put it this way... when a banker tells you that a bill which makes it hard for a person to declare bankruptcy is bad, then it's pretty damn bad. This was a Republican kiss to the credit card companies and collection agencies, two groups that aren't exactly beloved in the US (from McClatchy via Somervell County Salon)
In 2005, Congress passed a new law aimed at making it harder for people to file for bankruptcy and walk away from their debts.With the tougher requirements, the number of bankruptcies declined in 2006 but surged by nearly 40 percent in 2007, according to statistics released Thursday. And experts predict the numbers will go higher this year.
The issue is gaining plenty of attention on Capitol Hill, where leading Democrats are proposing to roll back the landmark bankruptcy law. As the number of foreclosures rise, backers of an overhaul say it's needed to prevent more Americans from losing their homes.
"You ought to never lose your home in a bankruptcy proceeding," Connecticut Democratic Sen. Chris Dodd said during a presidential debate in Iowa last month.
Here's a little illustration. Let's say you're married and your spouse catches something bad, but curable. They go in for very expensive treatment and are cured. Of course, you're left with massive medical bills, even if you have insurance. Normally, you'd declare bankruptcy if you're unable to work out a payment plan. Under the Republican law, the bankruptcy judge has very little leeway and can force you to liquidate your assets, including your home. See how much fun this is? Maybe you decide not to file BK but instead just ignore the bills. The collection company then decides to take you to court and they get a lien against your home, effectively giving them ownership. Needless to say, Dodd reworking this legislation is nothing but a good thing.
Unfortunately, we can't say the same for his version of the Home Ownership Protection and Preservation Act styled as S.2452. This legislation will, in effect, remove the majority of the originators from the market. Those that remain will either work for mega banks like BofA, JP Morgan Chase and Citibank OR they'll fold into mortgage banking companies. The fun part will be that what is transparent today, Yield Spread Premium, will be hidden forever since banks don't have to disclose what they make. This will, of course, make it more expensive for consumers AND remove capacity from the market at the precise time the market needs it. Click the link and see what I wrote about this mistake of a bill back in November. What I said then stands today and this thing, in it's current form, should be put in a drawer and forgotten.
Trust me, there are a few bad brokers and they are slowly but surely being removed from the marketplace. This bill won't accomplish the goal of cleaning up the origination market. All it will do is hide more from the consumer and increase their costs to buy a home. For those of you who think I'm self dealing (I'm a wholesale banker) more than half of my clients are banks. I'll just shift the rest over so this bill will have no impact on my business. It will be shitty deal for consumers.
And who's pushing this? Why none other than Wells Fargo, Bank of America and the other large banks who are tired of competing against the Third Party Originator (broker) market. Many of these banks have recently terminated their wholesale lending divisions in an effort to squeeze brokers and force consumers to their retail divisions. Further, they've been lobbying through community reinvestment groups for the elimination of brokers en masse. And the Democrats are actually falling for it.
Take a second, contact Senator Dodd today and let him know we love the Bankruptcy reform but hate the mortgage reform.
Posted by mcblogger at 08:43 AM | Comments (0) | TrackBack
December 31, 2007
Exxon drops itself in the grease
Stop me if you've heard this one before... large oil company opens and exploits a producing field over a period of decades. When the economics no longer work, they shut in production and give up the lease. A new company comes in, negotiates a new lease and attempts to reopen the wells that should be profitable for them since they don't have the large company's overhead and can take advantage of a new tax break.
Only problem is, the large oil company, in violation of state law, dumped trash and other materials down the well to make it very difficult or impossible to reopen. Further, in one case, they killed a producing formation.
The large company? Exxon who has been sued by both the land owner (Exxon lost) and the new company (Emerald... Exxon lost against them as well). All this went to trial years ago. Now, it's with the TX SC which should rule in the next few months. However, while this little legal drama plays out, what the hell has the RRC done? Specifically, what has Republican Michael Williams of the RRC, who's up for re-elect next year, done?
Absolutely nothing. Basically, what Exxon wanted him to do. He should have known for years that Exxon violated their lease AND state law, yet he's done NOTHING. Which is business as usual for the lazy and incompetent Williams who revels in triviality and fails, time and again, to protect Texans. If he didn't know, then he's negligent and should be removed from office.
Damn good thing we have a choice this cycle... Dale Henry.
Posted by mcblogger at 10:49 AM | Comments (0) | TrackBack
December 27, 2007
Consumer Alert
Better check your checkcards, boys and girls...
I have three accounts I spend money out of. Two checking and one savings. I have one checking account with Compass here in Austin. I rarely check the online system, so things can go for days before I notice something is up. Last week someone called WWW.VOIPAX.DE KAARST charged me for $15.60. Not knowing who they were, I went down to Compass and asked about it. They didn't know, but gave me a wonderful slip of paper detailing out how to talk to their 'un-authorized transaction' dept. I just got off the phone with them since there have been 6 charges today from someone called WORLDWIDE GLUCKSMANN T VENEZUELADEBIT. Which brings the total to $500 that is now missing from my checking account here in Austin.
6 charges in one day from the same source and the nice folks at Compass didn't get a teensy bit suspicious?
Compass says it will be 7-10 days before it's resolved. I have money (in other acounts) and credit, so I'll be OK. HOWEVER, there are many out there who don't. So, you might want to take a peek at your checkcard transactions online.
Oh, and doesn't Compass suck, yo? Methinks I need to find a new bank.
Posted by mcblogger at 06:48 PM | Comments (4) | TrackBack
December 11, 2007
Is it just me...
...or is this a really stupid idea? I mean, isn't this what a BlackBerry and/or an IPhone are for?
And I'm not even going to begin to rip on the assface design or the lack of a color screen. Idiots.
Posted by mcblogger at 08:47 AM | Comments (0) | TrackBack
December 05, 2007
Xerox needs you (to thank the troops)!
Via Hal at Half Empty comes a new service from Xerox to let all of us slobs sitting on our asses send a thank you note to the troops in the middle east. Whatever your opinion of Bush and this war, these men and women are doing their jobs as best they can. Take just a moment and say thanks!
Posted by mcblogger at 09:04 AM | Comments (0) | TrackBack
November 29, 2007
The end of the strike...
No, not that one...
Striking Broadway Stagehands and Theater Producers Reach a Tentative SettlementThe 19-day strike by stagehands that had closed most Broadway
theaters ended late tonight as a tentative agreement was
struck.An announcement came at about 10:30p.m. The negotiations
between the League of American Theaters and Producers and
Local 1 of the International Alliance of Theatrical Stage
Employees had begun at 10 a.m., the third marathon session of
the week.
Via the NYT
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November 27, 2007
Verizon to allow 'any old thing' on network in '08
Verizon, in an attempt to draw third party developers to make crap for it's subscribers, will allow almost anything on it's network that conforms to certain 'standards'.
Oh... and just a smidge of exhaustive testing.
In early 2008, the company will publish the technical standards the development community will need to design products to interface with the Verizon Wireless network. Any device that meets the minimum technical standard will be activated on the network. Devices will be tested and approved in a $20 million state-of-the-art testing lab which received an additional investment this year to gear up for the anticipated new demand. Any application the customer chooses will be allowed on these devices.
So, no, the DIY rotary cell phone you painstakingly put together a year ago will not work on the network. Your friends were right. You were a total nerd for making that thing.
Posted by mcblogger at 09:56 AM | Comments (0) | TrackBack
November 26, 2007
BP broke law at Texas City plant, lawyers say
Remember that Texas City refinery that BP owns and operates? You know, the one that blew up in March, 2005 killing 15 workers and injuring hundreds? Apparently, it shouldn't have even been operating...
BP Plc violated Texas's ``revolving door'' law in 2003 by hiring a state environmental engineer to work on the same air pollution permit he'd supervised as a regulator, lawyers suing the company claim.The permit, which governs BP's Texas City, Texas, refinery, allowed the company to operate its largest refinery without replacing outdated emissions controls, such as the one that exploded in March 2005, killing 15 workers. Texas law requires applications be rejected when the people involved worked on both sides of the permitting process.
The engineer ``changed sides and worked on the other side of this same thing for BP, representing BP against the state?'' a lawyer for some of the injured workers asked Watson Dupont, a safety manager at the Texas City plant in a Nov. 15 deposition, portions of which were made public in court filings Nov. 23.
``He worked for BP in 2003 on the third draft of the flex permit, yeah,'' Dupont replied, referring to BP Senior Air Engineer Rueben Herrera, a former permitting engineer at Texas Council for Environmental Quality. The group regulates industrial emissions.
Here's the best part...
Mark Lanier, in a Nov. 23 filing in Houston federal court, singles out Herrera's involvement on both sides of BP's air- quality permit for the Texas City refinery as proof that BP ``flagrantly violated a variety of regulatory and ethical guidelines to ensure its criminal acts could proceed apace.''``Herrera did secure the necessary permits despite the fact that such action was itself a crime,'' Lanier said in his objections to BP's plea. Lanier said the plea doesn't punish BP's ``breathtaking acts of criminality.''
...
In hearings since September 2006, BP's lawyers have repeatedly told State District Judge Susan Criss, who is overseeing the civil case, that the company didn't break any laws regarding its Texas air-quality permits. Last year, Criss ruled she would allow jurors to consider evidence that BP may have falsified documents to fraudulently obtain its permits against the company for punitive damages purposes.``Herrera testified many months ago, and it was incredible what we heard,'' Criss told civil lawyers during a Nov. 12 pretrial hearing, referencing Herrera's prior testimony on the permits. ``He indicated it was a criminal act for him to have left that agency and gone to work for BP,'' Criss said.
Gotta love that this is before Judge Criss instead of one of those Republican gas bags who'll vote with industry 84% of the time...
Posted by mcblogger at 01:41 PM | Comments (0) | TrackBack
November 19, 2007
Level 3 assets and the SIV backup fund
Two weeks ago we talked a little about the next part of the meltdown in the credit markets, what will soon be the furor over level three assets. Now comes word that the nations big banks and investment houses have structured a fund that might actually help alleviate the problem. By creating a buyer of last resort in an illiquid market...
Officials from Bank of America, Citigroup and JPMorgan Chase reached agreement late Friday, settling on a more simplified structure than had been proposed, said this person, granted anonymity because he was not authorized to talk for the group.Bank participants, money market investors and even some managers of the troubled investment vehicles that would benefit most had considered previous versions of the fund to be infeasible, casting doubt over a final plan. Discussions had been taking place since early fall, when the Treasury Department convened a meeting.
Now, the proposed fund could begin operating by the end of December, this person said. The banks could begin asking roughly 60 financial institutions to contribute to the fund by Friday or early next week.
Of course, this is kind of a backdoor way for the banks to take some pressure off their balance sheets from all the level 3 assets they've been forced to salt away. Look at it this way... you have a bunch of assets you can't sell because no one wants them. So, you create a company that will buy certain of those assets, creating a market value for them. It's self dealing, analogous to what our good friends at Enron did. However, unlike Enron, this is real capital the banks are having to cough up out of their equity. Frankly, it has to work or many of our largest banks are going to have to access their lender of last resort, the Federal Reserve, to remain solvent.
Which is a nice way of saying US taxpayers.
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HR 3915 passes and other mortgage news
Yes, HR 3915 has passed the House and is off to what one can only hope will be a rocky reception in either the Senate or with, God forbid, President Bush.
Seriously, we need reform. The market needs regulation and consumers have to be protected. This doesn't do that AND it cripples the marketplace. Do you have any idea how depressing it is not only to see your party fuck up brilliantly but to be forced into agreement with douchebag's like Kenny Marchant and Patrick McHenry? I hate those guys.
Still, they were right on this one. I guess it had to happen. Even a broken clock is right twice a day.
In other mortgage related news, FHA Modernization was stalled out in the Senate by Tom Coburn, a Republican from Oklahoma (doesn't that make him a double retard?)
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November 15, 2007
HR 3915 : A solution that creates bigger problems
Reality is never an easy thing to acknowledge, especially when it becomes clear that our intention to help people will, instead, fail them. That's the case with Representative Brad Miller's bill, HR 3915. It's also hard for me, as a Democrat, to believe that a member of my party, serving his constituents, would propose this horrendously bad, consumer harmful legislation. Last night I finally realized that he didn't do this to help out big banks, the special interest that will most benefit from the passage of HR 3915.
It's my belief that Rep. Miller had nothing but good, even noble, intentions. He wanted to protect consumers from being taken to the cleaners by unscrupulous mortgage brokers. Fortunately for Rep. Miller of North Carolina, his bill does exactly that, by killing the entire mortgage brokerage industry. Unfortunately, it still leaves consumers vulnerable to unscrupulous mortgage bankers and builder/Realtor controlled mortgage companies.
It also removes 25% of Americans from even the possibility of owning a home because they will not able to obtain financing.
This entire meltdown in the credit market is really nothing more than bad press and stupidity. For one thing, more than 80% of even the riskiest sub-prime mortgages are performing. That means that 80% of the people who obtained financing for a home outside of conventional (good credit, easy to document income and assets - the overwhelming majority of mortgage loans in US) guidelines still own their homes and will continue to. The reason the market has slowed down to a crawl (and why subprime has already disappeared) is that the loans packaged as securities and sold to investors were priced as if they bore no credit risk. In short, investors got panicked when they realized that the B/C credits they paid A prices for actually performed like, well, B/C credits.
The market has already corrected the underwriting criteria available to brokers and frozen out subprime options. This has effectively removed 25% of Americans from the marketplace for mortgage financing. Rep. Miller's bill won't change that. What it will do is make sure that these people will never buy a home by making it illegal to underwrite loans to lenient, high risk, characteristics. They may be able to refinance into FHA, some may even clean their credit to the point where they will be able to see and buy a home. However, that basket will go away and many people with poor credit will never be able to achieve the American Dream.
Of course, some of these people will able to obtain FHA or conventional financing with larger than usual down payments. However, at the very least, 15% of Americans will never own a home if Rep. Miller's bill passes.
The saddest thing about this that Rep. Miller is trying to do through legislation what should more properly be done through regulation. Mortgage brokers think national licensing, standards and regulation is a great idea. However, it has to be funded. Rep. Miller's bill tasks the same old people with implementing the new rules. As we've all seen from the anecdotal cases of broker-initiated mortgage fraud in the US, those agencies just aren't up to the task of enforcing the rules we have now.
The reality that Rep. Miller doesn't want to acknowledge is that more than 98% of brokers are good, decent professionals, a fact which no one has sought to question because more than 60% of the loans originated in the US are originated by brokers. These people who have close relationships with their borrowers. In many case, they have replaced the community banker and basically become the George Bailey's of the 21st century.
What's needed is a better bill that creates a level mortgage loan origination playing field between banks and brokers, creating an even more vibrant and competitive market. A bill that ends the ability of builders and Realtors to own mortgage companies or profit from them. A bill that protects consumers without crushing them or destroying their options.
What's needed is a do-over. We ask every Democrat in the House to vote against this horrible piece of legislation. And start over again on something that will actually do something to strengthen the market, not kill it.
Posted by mcblogger at 08:58 AM | Comments (0) | TrackBack
November 14, 2007
Warren Buffett testifies today!
First off, there was this in the WSJ suggesting Buffett may be the savior of the collateralized debt obligation market...
In recent weeks, every major bond insurer has reached out to Berkshire -- owner of a range of companies including reinsurer General Re Corp. and auto insurer Geico -- as a source of capital relief while their financial strength comes under scrutiny by ratings firms and investors, according to these people. In the process of pleading their cases with Berkshire, these companies provide Mr. Buffett with opportunities to size up their businesses."Fear has moved away from hurricanes and is now moving into the financial markets," said Glenn Tongue, a partner at T2 Partners LLC, a New York hedge fund that owns Berkshire Hathaway shares. "Warren Buffett can make a lot of money from fear," he said.
And then there was this...
Warren Buffett has said it before and he's likely to say it again to Congress on Wednesday: He thinks the heirs of the wealthy should be taxed on their inheritance.Buffett, one of the world's richest men and now its biggest philanthropist, has been an outspoken critic of efforts to repeal the estate tax and is scheduled to testify at a Senate Finance Committee hearing on how current law affects estate tax planning.
The man is richer and smarter than every Republican in the Senate. It would be nice if they'd actually listen to someone who was successful instead of people who made their money off shareholders.
"Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit," Buffett told the New York Times in 2001. "[Repeal would be like] choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."
Exactly.
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November 06, 2007
The saddest news I heard all day...
Foreclosure proceedings have begun against Michael Jackson by the lender holding the mortgage on Neverland Ranch.
Barney Frank will be having a press conference on this tomorrow during which he will blame mortgage brokers, Pat Boone and the ghost of Scatman Caruthers.
Posted by mcblogger at 09:07 PM | Comments (0) | TrackBack
Plastic electricity
Gizmodo has the low down on dual layer plastic photovoltaics. While less efficient than semiconductor based PV systems, these plastic cells are very cheap to produce and drop price/efficiency ratios significantly.
Nobel prize-winning scientist Alan Heeger and his buddies have figured out a way to print more-efficient plastic solar cells, boosting their efficiency to 6.5%, a world record for these photovoltaic polymers. Heeger and his colleagues perform this trick by using two layers of different types of plastic, and whenever one layer doesn't turn light into electricity, the other one picks up the slack. Now the scientists are getting cocky, saying they can improve the tech even further.
Plus, you can make them out of plant or petroleum polymers. Granted this is all still in prototyping, but as we've seen in other systems, the pace of R&D has accelerated in recent years. It's not unlikely that you'll see plastic PV systems commercially deployed by the end of 2009. Shortly thereafter, Sears will be begin offering it as a siding option.
Oh, and here's a graphic.
Posted by mcblogger at 01:03 PM | Comments (0) | TrackBack
November 05, 2007
Oversubscribed
PetroChina shares went public today in Shanghai to Chinese domestic investors who have been unable to buy the stock which trade in NYC and HK. The offering was so massively oversubscribed that at one point the company had a valuation of more than $1 trillion, double that of Exxon.
It was a record-setting day for PetroChina (PTR). With an $8.9 billion debut in Shanghai, the state-controlled oil-and-gas producer laid claim to raising the greatest amount of money of any new listing globally this year. By the end of the first day of Shanghai trading on Nov. 5, PetroChina's share price had more than doubled, to 59¢, up 163%.The Beijing-based company first went public in New York and Hong Kong in 2000, but until the Shanghai debut its stock was largely off-limits to China's huge pool of retail investors, who can't legally trade shares outside the mainland. Now PetroChina is no longer out of reach. The euphoria that greeted the Chinese debut left the company with a market capitalization of $1 trillion, leaving second-ranked Exxon Mobil (XOM), valued at a mere $488 billion at the Nov. 2 close, in its dust.
However, on a normalized EPS multiple (13 for Exxon which has almost double the profit of PC which trades at a 55 multiple), the company is still substantially smaller than Exxon and the major global oil companies. In other words, the market cap is more a function of investor demand than corporate performance.
But looking at PetroChina by market cap alone grossly overstates its relative size and importance in the global oil industry. The company's displacement of ExxonMobil is a reflection of just how overheated China's stock markets have become. PetroChina may have a market cap more than twice the size of ExxonMobil, for instance, but when measured in profits the Chinese company is still a pip-squeak compared to the U.S. giant: PetroChina saw earnings rise a mere 1.4% to $10.9 billion in the first half of this year, compared with Exxon Mobil's $19.54 billion.
Regardless of the mechanics behind the valuation, on paper this is the first company in the world capitalized at more than $1 trillion. Pretty impressive for an economy that 30 years ago was widely viewed as just another third world basket case.
Posted by mcblogger at 01:18 PM | Comments (0) | TrackBack
November 02, 2007
Toyota has a new hybrid
And Toyota continues to lead the way on electric/hybrid vehicles, this time with a plug-in hybrid.
According to Jalopnik, 'Toyota will officially be asking for permission from Japan's Ministry of Land, Infrastructure and Transport "for the testing of a prototype plug-in Prius on public roads."' Pricing and availability have not yet been announced."After completing the road tests, Toyota will then be able to begin the process of bringing them to market by leasing them to public municipalities and governmental offices. Asahi is also saying Toyota is testing a lithium-ion battery pack in the plug-in."
Wouldn't it be cool if GM, Ford or Chrysler could get off dead center and do something in this direction?
Posted by mcblogger at 02:18 PM | Comments (0) | TrackBack
Google enters wireless
via Gizmodo
Though there's no official talk of a Google Phone just yet, the superpower has decided to ante up $4.6 billion to bid on wireless spectrum. Google did say it would only do this on one condition, however.
That whoever won the spectrum would be bound by law to offer at least some access to it at a wholesale price to competitors. As you might have guessed, this has pissed off some of the existing wireless carriers, who claim that sharing spectrum would lessen the spectrum's value. I'm sure both sides have nice charts and graphs to prove their legitimate points, but for now I'm going to side with the Goog.
Google stock today hit $710 proving that there is literally a sucker born every minute.
Posted by mcblogger at 01:13 PM | Comments (0) | TrackBack
October 21, 2007
Reason #3296 why Verizon and AT&T suck
Verizon joins AT&T in admitting that it complied with Bush's illegal wiretapping order...
Verizon also disclosed that the FBI, using administrative subpoenas, sought information identifying not just a person making a call, but all the people that customer called, as well as the people those people called. Verizon does not keep data on this "two-generation community of interest" for customers, but the request highlights the broad reach of the government's quest for data.The disclosures, in a letter from Verizon to three Democrats on the House Energy and Commerce Committee investigating the carriers' participation in government surveillance programs, demonstrated the willingness of telecom companies to comply with government requests for data, even, at times, without traditional legal supporting documents. The committee members also got letters from AT&T and Qwest Communications International, but those letters did not provide details on customer data given to the government. None of the three carriers gave details on any classified government surveillance program.
DO NOT GIVE THESE COMPANIES IMMUNITY.
Posted by mcblogger at 11:54 AM | Comments (1) | TrackBack
October 15, 2007
Is it just me?
Or do you get really irritated with that obnoxious douchebag AT&T is using on their wireless data commercials?
Speaking of wireless broadband, don't bother with AT&T. Go to Sprint. I have accounts with both and can tell you Sprint's network is way faster.
Posted by mcblogger at 07:40 PM | Comments (0) | TrackBack
October 12, 2007
Friedmanite utility dereg fails. Officially.
Again, we're talking about utility deregulation. This time, from an analysis in the late to the party Chron (via Kuff)
[T]he very structure of Texas' deregulated market exposes customers to the full impact of rising natural gas prices more than in other states, or even in parts of Texas still served by regulated electric companies, municipally owned utilities or electric cooperatives.The 25 percent of Texans living in those regulated markets generally pay less than rates available in markets that have been opened to competition.
Houston residential consumers use an average of 1,130 kilowatt hours a month. Bills for that much power would range from $125.43 to $163.85 based on rates available in Houston at the end of September for a one-year, fixed-rate plan. The average rate available in Houston would produce a monthly bill of $142.95.
The same amount of electricity would cost $97.41 in San Antonio and $105.32 in Austin, both served by municipally owned utilities.
Deregulation supporters say its success should not be judged just on price, and point to the variety of electricity service options available to customers. But they have been slow to take advantage of the choices.
The variety of service options? Like what? 12/12 plan that keeps my power on only for 12 hours a day and pulls me off the grid for the 12 that I'm at work/stuck in traffic? What difference does it make if the kWh is still more expensive than the pinko's in Austin are paying?
Pretty sad when the widely derided most liberal city in Texas has better and cheaper utility service than the capitalist powerhouses of Dallas and Houston. But at least Dallas and Houston people have their choice from a 'variety of service options'.
Variety of service options... You can stick that up a variety of assholes.
Posted by mcblogger at 09:12 AM | Comments (0) | TrackBack
October 11, 2007
Draw your own conclusions...
Naomi Klein has written a thoroughgoing indictment of Milton Friedman and his Chicago School of economic theory which is functionally supply-side with a penchant for what Friedman called 'economic shock treatment'. Basically, you create the conditions that allow the economy to get sooo bad that the people will accept a change, any change, that promises to fix the problems. In theory, it should expand services and create wealth across every economic level. In practice, it creates massive stratification and does little to fix or create critical services. It also makes everyone not already wealthy destitute...
Klein argues that Friedmanian free market rules do exactly what they were designed to do: they don’t create a perfectly harmonious economy, complete with the much-lauded “trickle-down” effect, but rather, turn the already wealthy into the super-rich and the organized working class into the disposable poor. Further, she describes these orchestrated raids on the public sphere in the wake of catastrophic events, like war, as exciting marketing opportunities or “disaster capitalism.”
So, why even mention this? Simple. This is about to happen to us and you might as well be prepared for it. Since the supply-side revolution Reagan ushered in more than 26 years ago, we've seen economic stratification climb to alarming levels not seen since the Gilded Age. Despite the fact that it doesn't really help anyone other than those already rich.
Which brings us to the tax issue we mentioned yesterday. The supply siders will tell you that cutting taxes will increase economic growth and create surplus revenues. That's actually not true since it's dependent on the Laffer Curve and even it is subject to the law of diminishing returns. What's needed is a balance in marginal tax rates and efficient use of the money by the government, not endless deficits, mounting debt and low taxes for the already rich. That and the fact that tax policy has less of an impact on business conditions than interest rates.
Think, for a second, about our crumbling infrastructure, our rising deficit, underfunded entitlement programs... it's all leading up to a situation in which things will spin violently out of the control. Of course, when that happens, then we'll be ready for shock treatment.
Think it can't happen here? Cause a massive economic disruption in the US and people will accept anything that will fix it.
They elected Reagan, didn't they? Think of that as a dry run.
One other note about investments and taxes... I'm a HUGE fan of massive capital gains taxes, especially on gains realized in less than two years. Why? Because I hate traders and speculators. I'm a long term investor...THAT more than anything done by private equity companies actually provides long term stability and growth in businesses. It also stabilizes the retirements of hundreds of millions of people.
Posted by mcblogger at 03:15 PM | Comments (1) | TrackBack
October 05, 2007
"A Strong and Vibrant Economy"
President Bush used the mediocre job report to beat up Congress about raising taxes on the 'hard-workin' people of 'Merica'. By 'hard-workin' people' he means those making more than $200m per year which is the only income class that has seen any growth in their income. It's also a relatively few people in this country.
I referred to the mediocre job report. August was revised up from -4,000 to +89,000. That means that in August, using BLS' numbers, the economy added 89m jobs. That's only 61m short of STATIC employment. The economy needs to produce 150m jobs per month to keep employment at a static percentage. Why? Because of growth in the population of the work force, balanced by deaths and retirements. In August, as in most of the months of this terrific expansion, the miraculous republican economy hasn't even produced enough jobs to keep up with the new people coming into the economy. So, there's no wage growth and jobs, not even the bad ones that are the real 'strength' of this economy, are still fewer than they should be.
The September report which came out today will probably be revised downward. However, for today it was 110m jobs. The unemployment rate 'ticked up' to 4.7% but in reality it's far higher since BLS no longer counts people who've 'dropped out of the workforce' which is their nice way of saying people who've been unemployed longer than 12 weeks in most cases. The real number is probably 2.5-3% higher and there's a really easy way to prove it. Just look at the earnings of the nations largest retailer, Wal-Mart. The lower end of the economy(which includes everyone making less than 200m per year), the one that actually spends money and generates consumer spending, is hurting and they aren't buying at Wal-Mart or other discount retailers.
They are going without. And that's what Connecticut native George W. Bush calls a 'Strong and Vibrant Economy'.
Posted by mcblogger at 09:33 AM | Comments (0) | TrackBack
September 12, 2007
THE Country Song for the credit-crunch
Posted by mcblogger at 12:25 PM | Comments (0) | TrackBack
September 11, 2007
DeLoreans. From Houston.
You have to read it to believe it.
Posted by mcblogger at 09:12 AM | Comments (0) | TrackBack
September 08, 2007
Fed release guidelines for sub-prime mortgages
OK, not exactly exciting for those of you outside the finance industry, but the Federal Reserve has released guidelines for sub-prime loan originations. Some of the new regs are interesting given the current issue in the lending industry with the rampant problems in underwriting standards and the resulting defaults. What really stands out to me are the changes to income evaluation. While these may seem like common sense changes, you had to be in the industry to see how far away from common sense some lenders went.
All this aside, this week we got the MBA's numbers on defaults and slowpays... Here's the skinny
Foreclosures - Mortgages where foreclosure process has been started to perfect title and take formal ownership
PRIME MORTGAGES - .27%
SUBPRIME - 2.72%
Slow pays - Mortgages 90 days or more late, but no foreclosure proceedings started
PRIME - .93%
SUBPRIME - 9.80%
See a trend? YES, subprime loans tend to have, on a historical basis, about 10 times the slow pays and foreclosure rates of prime mortgages. The other thing you should notice is that the sky is not falling.
The reality is that these loans are not going to perform like prime mortgages. Which is surprising only to the folks on Wall Street who priced those loans as if they would perform BETTER than prime loans.
Posted by mcblogger at 12:15 PM | Comments (0) | TrackBack
September 07, 2007
Smart people doing stupid things
I love Wall Street. I especially love how when someone is sucessful with an investing strategy, EVERYONE mimics it to the point that any advantage the strategy may have enjoyed is washed out because everyone is doing it.
Which is exactly the problem with quant funds. Run by fund managers armed with phalanxes of math nerds, these massive beasts use statistical models to predict the behavior of securities and reduce that behavior into a tradable strategy. These are some really smart folks with excellent strategies and statistical models. They just happen to be the same statistical models that everyone else is using. And none of them are capable to foreseeing a three-sigma event, like when a market stops working because of emotional people acting irrationally.
And that gives you a fast loss on the DJIA of more than 300 points in a day. Or at least it did about four weeks ago.
But the 387-point drop in the Dow Jones industrial average Aug. 9 and the continuing turmoil in the markets, in part attributed to massive sell-offs by the quant funds, have tarnished some of the quants' glimmering intellectual credentials and shown that, when push comes to shove, they can rush toward the exits as fast as a novice investor.
When will people learn that math isn't all that great at predicting irrational behaviors?
Posted by mcblogger at 10:17 AM | Comments (0) | TrackBack
August 31, 2007
In which two Republicans do something right
Well, at least half right...Bush is proposing expansion of FHA along the same lines we've already discussed. See how smart I am? Not really. Seriously, anyone in banking could have said the same thing. It's unfortunate that our douchebag of a Republican President has a better proposal for dealing with this than our Democratic candidates. Obama the Tard has decided to punish third party originators (known as brokers and small banks) because they are all to blame for the mess, in his ridiculous opinion. Which is really smart and all because these same folks are on a first name basis with tens of millions of voters.
Obama's proposal offers no real solution. Even if you want to collect penalties from brokers (which you can't do because more than 96% of them have never done anything illegal) they don't have the equity to pay the levy.
The only problem I still have with Bush on this issue is broadening the GSE's (Freddie Mac and Fannie Mae) which is something Congress will have to do and shove down his still stupid throat. At least HE got half of it right, unlike our Democratic candidates who flubbed this like a motherfucker.
Yes, there are two Republicans who've done something right. Perry finally gave in and commuted the sentence of Kenneth Foster.
Republicans doing something right... not too impressive when you consider that a broken clock is right at least twice a day.
Posted by mcblogger at 09:33 AM | Comments (0) | TrackBack
August 10, 2007
Sometimes markets break
The madness known as a credit crunch has set in. This is a fun time when private markets essentially break down and everyone is too scared to do anything. We talked about this last week in relation to the collapse of one lender in particular. What I didn't say was that the private secondary market was illiquid. By 'illiquid' I mean there was no money in it, even for A credits. In short, private investors were too scared to buy anything.
The only investors still reliably buying loans were the GSE's, known popularly as Fannie Mae and Freddie Mac, which IS, in fact the reason they exist. President Bankruptcy (so known because of his business prowess) said yesterday that he saw no need for an expansion at Fannie and Freddie to buy mortgage backed securities (MBS) and credit default swaps (CDS) outside of their charter (like jumbos and some Alt-A, as well as expanding the amounts that could take in and hold). So, with them under the control of the infinitely stupid, the Fed was left with little choice but to step in and establish a floor to the market. Normally, Fannie and Freddie would be the lenders of last resort. Because of the President's stupidity, the Fed had to step in and buy $35 Billion just this morning in MBS.
And that, my friends, is why you have government getting involved in private business. Occasionally, the markets collapse. That's a FACT that often is left out of the supply-side, get rich quick fantasies of the Republicans. When it happens, someone has to step in and make things work again. The reason organizations like the Federal Reserve and GSE's were created is to do just this... keep the market from getting too irrational.
Posted by mcblogger at 12:36 PM | Comments (0) | TrackBack
August 07, 2007
Oh, yes. Let's overreact.
Thank you, Senator Clinton, for stepping up to the plate and underwhelming the crowd. Even though you're thoroughly unqualified to address the issue, you took the time out of your busy schedule to talk about what you would do to fix the mortgage market:
Obvs, the first one and the last two aren't real, they're palliatives and they would actually do as much as Clinton's plan. For one thing, the HelpPool... this could be eaten up in Kansas alone, forget about CA, TX, FL, NY AND THE REST OF THE COUNTRY. Even if it was large enough, you still are providing a leaky bandaid, not fixing the problem which is people in mortgages they can't afford because of resetting ARMs.
How do you do that? It's called 'government insurance' and there is already a program in place that would, if modified slightly, allow people to refinance into more affordable mortgages. It's called FHA. Clinton would know that had she actually spent any time researching the issue. No, sorry... had her policy team actually spent time on the issue. Not only will it take care of the immediate problem, it's a long term solution that is largely self-financing and won't require taxpayers to take it on the chin.
As for beating up on predatory brokers, GO FOR IT. Every broker and banker I know would love nothing more than to see the few scummy shitheels in the business forced out. However, don't do it by squeezing the shit out of good people... do it by fully funding enforcement of the codes on the books. Texas, for example, has an excellent regulatory team that is chronically underfunded. They have the tools necessary to force the bad actors out of business, but they don't have the manpower. Rather than create new set of burdensome and ultimately confusing laws and regs, why not just enforce the perfectly good ones you have on the books now?
On the subject of pre-payment penalties, curbing abusive practices is a one page guidance letter from the Fed. However, eliminating them altogether will have a deleterious effect on the market and will end up driving up prices to consumers. Why? The debt market (which the mortgage market depends on) LOVES stability and will pay a premium for it. That means better rates for consumers. While this is well intentioned (you're trying to stop people from putting a 5 year pre-pay on someone with a 2 year ARM), you're going to end up hurting more people than you help. Pre-payment penalties also have a stabilizing effect on the real estate market because they put a damper on transactions known as flips which do a lot of damage to the overall values in an area when the pyramid finally collapses.
Next time, why not actually talk to someone in the industry. They'll tell you that the market is in panic mode because of lax underwriting guidelines driven by Wall Street, too much liquidity in the market, too little wage growth which has caused higher slow pays and default rates than anticipated. They'll also tell you how to fix things the right way.
Then you won't look like such an uninformed fool, Senator.
Posted by mcblogger at 11:04 AM | Comments (0) | TrackBack
August 02, 2007
The mortgage industry... what's going wrong?
Sean-Paul has a good post up about the fallout in the mortgage business. While it's not completely accurate (true defaults are no where near as high as his estimate), it's a good piece detailing the problem in the business. We first commented on this in March and honestly, not much has changed. The weaker hands have continued to shake out and some of the larger players have had to ante up with additional equity (Bear Stearns with their hedge fund, GM with the GMAC-RFC sale) which they are by and large doing because the assets are performing.
And that is the most stunning unreported fact. The loans are still performing. I asked the head of secondary marketing at my former employer point blank if he was going to cut Alt-A lending. Keep in mind, I used to work for one of the largest banks in the US and probably THE most conservative. Our Alt-A was almost as tight as conventional conforming. He told me that he foresaw no need because if the market wasn't there for a purchase, he'd hold the loans for sale and service them. Because they were performing perfectly.
The issue with companies like AHM is that they weren't nearly as conservative in their underwriting as my former employer and they didn't have anything approaching the capital level. But that only scratches the surface... what happened to AHM was nothing short of rope-a-dope.
Companies like AHM, which contrary to all the bullshit in the media was PRIMARILY a Conventional Conforming (Prime) and Alt-A lender, underwrote loans as part of a delegated correspondent relationship (with end investors who package the credits into mortgage backed securities) under the guidelines established BY the end investors. AHM used temporary money in the form of a warehouse line to fund it's loans until they are sold to one of those end investors. Those warehouse lines normally came from... wait for it... those same end investors. So, as the market tightened, and AHM was forced to repurchase some loans, they got stuck with loans that the end investors would no longer accept or would not pay as much for as they previously did. Since they were, in the opinion of management, good loans, they were held for sale. Problem is, when you are operating on a shoe string you can't do that for long. In their case, they could do it for less than 8 months. As the warehouse line filled up with unsaleable loans and the market didn't come back, the end investors whose sudden guidelines changes had caused all the problems in the first place, demanded additional equity to secure the warehouse line. When it didn't come, they pulled the plug.
Now, does this mean there will be a depression? No. Wages are finally starting to lift a little which will provide the next leg of growth to the economy. Housing is going to feel still more pain and the weaker hands will continue to fold. Which is great news for people like me.
And for those of you interested in buying a condo in downtown Austin... you'll want to wait for a bit. There hasn't been enough pain in that market and to be honest, the financing structures that sustained the market on the sale side no longer exist (try to get a nodoc option arm on a non-owner occupied condo). Fewer financing options means fewer buyers and when the market goes into into imbalance from few sellers and many buyers to the exact opposite, look out below.
At the end of the day, the real winners are going to be the hedge funds who are stepping in and buying these companies for pennies on the dollar. They will end up paying millions for loans that should be worth billions. And homeowners will keep making those payments