October 2009

Banks continue to cut lending

No matter how much liquidity the Fed and Treasury pump into the system, they can't seem to get the banks to lend.

(MarketWatch) -- U.S. banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payroll or refinance their maturing debts.
According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.

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Loopholes Will Be A Problem for Derivatives Bill

Amazing, there is a serious lack of courage to take on financial oligarchy and the corporate oligarchy. First, we hear that they are already watering down the legislation for the Consumer Financial Protection Agency. Now comes word that there is a proposal for a huge loophole in the derivatives bill:

Legislation by Representative Barney Frank to tighten derivatives regulation contains an exemption that may let most financial firms escape new collateral and disclosure rules, the head of the Commodity Futures Trading Commission said.

So, is this going to be one of those political exercises that says look we did something for show with no substance?

This a very brief summary of what is on the table:

Proposal: A New Mortgage Finance System

This proposal is nothing new "new" but borrowed from Denmark.

Our mortgage finance system is broken.  It needs some serious restructuring or a complete overhaul.  We can learn a lot about a new structure from the Danes.  The Danish mortgage system is one of the oldest and most sophisticated housing finance markets in the world. 

Increased Financialization in the U.S.

Unofficial Economic Policy: Re-Inflate the Bubble

This is kind of a follow-up to this story here. And it reinforces the notion that the Administration and the Democratically-controlled congress are dead set on re-inflating the housing bubble.

There are two proposals at play: 1) extending the first-time homebuyer tax credit and 2) Increasing the loan limit amounts for Fannie, Freddie and FHA.

First-time Homebuyer Tax Credit

According to Bloomberg:

House Speaker Nancy Pelosi said lawmakers might extend an $8,000 tax credit for first-time homebuyers that is set to expire Dec. 1.

The 3 F's - Fannie Mae, Freddie Mac and the FHA

There has been a series of Congressional hearings and there are two which point to some serious trouble at our never ending financial black holes, Freddie Mac, Fannie Mae and the FHA.

Firstly, Fannie & Freddie might require even more money, even though they have received $96 Billion in bail out cash. Total losses to date from these two is $196 billion.

Their books are still bleeding red as foreclosures rise and homeowners — even the highest-quality borrowers — fall behind on their mortgage payments. Several crucial positions remain vacant, and Mr. DeMarco said the agencies are worried about losing workers because of the uncertainties surrounding their fate.

How much do "Too Big to Fail" Banks cost us? Try $34 billion a year

the total taxpayer subsidy for the 18 large bank holding companies was $34.1 billion a year.

This is a quote from Dean Baker's study, The Value of the “Too Big to Fail” Big Bank Subsidy

Baker calculates the cost to the U.S. taxpayer for borrowing interest, the interest rate for 18 TBTF (too big to fail) banks vs. smaller ones. It's much lower, due to the new policy that these favored banks will never be allowed fail, regardless of their balance sheets.

The government guarantee TBTF becomes extended to investors and lenders to these banks, resulting in overall lower costs of doing business than our network of regional and smaller banks. Nice huh? That's competition and free markets, uh huh.

The full paragraph:

When you were young, was this article title even imaginable?

Did you ever imagine, when you were young and America was invincible that you would wake up, coffee in hand, and read this title? Asian countries step in to support dollar

Asian central banks intervened heavily in the currency markets on Thursday to slow the slide of the US dollar amid growing concern about the potential impact on the region’s export driven economies.

Must Read Posts - Sometimes you just can't say it better for October 8, 2009

On The Economic Populist you might have noticed the middle column. We try to list other sites and blogs who have exceptional insight and writing on what is happening in the U.S. economy.

Sometimes though, one cannot say it better but miss those who did.

Must Read #1

Calculated Risk's The Housing Tax Credit: NAHB Projections. Pretty astounding that on a $8k-$15k tax credit for new homebuyers, it actually costs:

The NAHB has also been arguing to expand the tax credit from $8,000 to $15,000. But using $8,000 per home buyer - and estimating 5 million home sales over the next year - the total cost of the tax credit would be $40 billion.

According to the NAHB this would result in 383,000 additional home sales. Dividing $40 billion by 383 thousand gives $104,400 per additional home sold!

Hey, that's efficient!

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