July 2009

Foreclosures often in lender's best interest

Politicians might make a lot of noise about how banks and mortgage lenders aren't doing enough to help out distressed borrowers, but there is a good reason why.

Government initiatives to stem the country's mounting foreclosures are hampered because banks and other lenders in many cases have more financial incentive to let borrowers lose their homes than to work out settlements, some economists have concluded.

Policymakers often say it's a good deal for lenders to cut borrowers a break on mortgage payments to keep them in their homes. But, according to researchers and industry experts, foreclosing can be more profitable.

A Dear Ben Letter

It seems a few in Congress are really wondering why Goldman Sachs is being enabled to gamble with taxpayer money and how it is they were given exemption to the normal rules to limit risks of bank holding companies. Will Congress get a Dear John Letter in response?

Ben Bernanke
Chairman
Federal Reserve System
20th Street & Constitution Avenue, NW
Washington, DC 20551

 

Dear Chairman Bernanke:

 

No Political Party Had Clean Hands in Washington D.C.

No political party had clean hands when it came to having a role in this financial crisis. This was especially true when it came to certain powerful Democrats. Democrats loved Fannie Mae and Freddie Mac and Countrywide Financial Corp because these organizations showered Democrats with cash. We know that money talks in Washington.

Countrywide Financial had a "VIP" program that its former CEO Angelo Mozilo liked to use to very generously to reward friends of Countrywide. It was informally called "Friends of Angelo Mozilo". Well, it was disclosed last year that two powerful Democrats may have benefited from this "VIP" program: Senators Chris Dodd and Kent Conrad.

Housing Data - Green Shoots or ?

Frankly beyond making a few comments on statistical truths, I do not follow the housing statistics well enough to intelligently comment. So with that, this post is a link to others who can.

Firstly the report from the Commerce Department:

Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0
percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of
488,000.

The median sales price of new houses sold in June 2009 was $206,200; the average sales price was $276,900. The
seasonally adjusted estimate of new houses for sale at the end of June was 281,000. This represents a supply of 8.8 months at the current sales rate.

Fitch Ratings Report - 80% of all derivatives concentrated at 5 companies

Remember those nuclear time bombs called derivatives, structured finance vehicles we've been writing about for months?

A new Fitch Agency report, 'Derivatives: A Closer Look at What New Disclosures in the U.S. Reveal (you must login, very obnoxious website!) show:

80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives.

Proposal: Financial Literacy Centers Across the U.S.

This is a modest proposal and actually may not be very original. But this is a very important topic that is not getting enough attention. This proposal could be implemented easily and quickly if it had the right partners.

Our financial system offers many options for people to save, invest and obtain credit. But having all these options is not necessarily a good thing. These increased options have also added more complexity to a financial system that was already pretty intimidating for many people. Many of us do not have a basic understanding or knowledge about finance to make good financial decisions for ourselves. Studies have shown that this financial "illiteracy" is widespread across the U.S.

Have a Say on Say on Pay

Have your say on Say on Pay. Executives now get over a third of all income in the United States. We saw outrageous bonuses to the very people who put the entire globe on the brink of financial Armageddon with us footing the bill for their folly.

The debate is over on the need of corporate executive compensation reform. We must have reforms on how the top brass are paid in this country. Else we risk commissioning the very same captains for yet another economic ship of fools joy ride similar to the one which just brought this nation to the brink of doom.

Now the question is which reforms? Will they actually work as intended?

Jobless Recovery - Hiring Ice Age for 2009 Grads

From Christopher Swann from Reuters: The danger of a lost generation

 

NEW YORK, July 24 (Reuters) - For the first time in three generations, Americans across the nation are facing the threat of long-term unemployment. Already more than one in four jobless Americans have now been out of work for more than six months, the highest level since records began in 1948.

For both individuals and national economies, long-term joblessness has proved to be extremely corrosive. Skills atrophy after extended periods of enforced indolence. Then, when an economy recovers, these workers are no longer in a position to fill new jobs.

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