Wall Street Bankers to Lesser Mortal Homeowners:
"What, Us Worry?"
It’s time to travel the Watchworld to see what other watchers of the Liquidity Crisis and the Housing Crash are seeing from their perches looking down . . .
I think I will do this exercise more often . . . whereby I open three or four random links on my blog's margins . . . and see if I can thread them together as a mental exercise which might enlighten and educate.
So, let's get on with it.
From Jim Kuntsler’s Clusterfuck Nation latest “Margin Call”
“What you're seeing now is a simple matter of financial sector players trying desperately to evade the consequences of their own actions. The fake wealth generated by the synthetic securities they created is now being recognized for what it is: a swindle. The hallucination is over. The collective denial that supported that hallucination is dissolving. The losses are become manifest. Even worse, the losses are growing exponentially because the synthetic securities were used as collateral to leverage far greater multiples of "positions," bets, and plays in a casino-like global electronic trading arena.
This is what happens when investment gets de-coupled from real productive activity and becomes an end in itself. It has been terrifically enhanced by computer programming. But no amount of digital legerdemain --with the "sugar-on-top" of accounting trickery -- can now hide the fact that there is no "value" there. What's more, the losses are going to have to show up somewhere. If you try to suppress them in one area, they'll pop up in another. If the Federal Reserve tries to cover the losses racked up by the Big Fund Boyz by giving "cash" away, they'll only succeed in destroying the value of the cash itself, i.e. the US dollar.
The upshot is that we are going to find ourselves a poorer nation. There will be far fewer people with money. There will be far fewer buyers of repossessed McHouses, bass boats, etc. Even the houses in Sagaponak and the Manhattan apartments will go cheap. The effort to pretend our way out of a financial crisis will fail. Sooner or later the recognition will set in that all that "boo-yah" was dreamed up. The United States swindled itself. We became a nation of such greed-crazed clowns that we committed financial suicide in an orgy of self-deception.”
Whew. Don’t hold back, Jim. Tell us how you really feel.
From KRCA News in Sacramento, CA, we get this enlightenment about how the Housing Crash is playing out in California:
From Jim Kuntsler’s Clusterfuck Nation latest “Margin Call”
“What you're seeing now is a simple matter of financial sector players trying desperately to evade the consequences of their own actions. The fake wealth generated by the synthetic securities they created is now being recognized for what it is: a swindle. The hallucination is over. The collective denial that supported that hallucination is dissolving. The losses are become manifest. Even worse, the losses are growing exponentially because the synthetic securities were used as collateral to leverage far greater multiples of "positions," bets, and plays in a casino-like global electronic trading arena.
This is what happens when investment gets de-coupled from real productive activity and becomes an end in itself. It has been terrifically enhanced by computer programming. But no amount of digital legerdemain --with the "sugar-on-top" of accounting trickery -- can now hide the fact that there is no "value" there. What's more, the losses are going to have to show up somewhere. If you try to suppress them in one area, they'll pop up in another. If the Federal Reserve tries to cover the losses racked up by the Big Fund Boyz by giving "cash" away, they'll only succeed in destroying the value of the cash itself, i.e. the US dollar.
The upshot is that we are going to find ourselves a poorer nation. There will be far fewer people with money. There will be far fewer buyers of repossessed McHouses, bass boats, etc. Even the houses in Sagaponak and the Manhattan apartments will go cheap. The effort to pretend our way out of a financial crisis will fail. Sooner or later the recognition will set in that all that "boo-yah" was dreamed up. The United States swindled itself. We became a nation of such greed-crazed clowns that we committed financial suicide in an orgy of self-deception.”
Whew. Don’t hold back, Jim. Tell us how you really feel.
From KRCA News in Sacramento, CA, we get this enlightenment about how the Housing Crash is playing out in California:
“A new report says Stockton's foreclosure rate is the worst in the country, and Sacramento is not far behind.
Foreclosures have skyrocketed in California, Ohio, and the Northeast. Nationwide, there are about 600,000 properties in foreclosure. By the end of the year, 1 million properties are expected to be in foreclosure.
Stockton isn't alone with this dubious distinction. Sacramento is No. 5 nationwide, Fresno checks in at No. 14. Oakland is No. 19 and San Francisco came in at No. 78
Homebuilding in the Central Valley skyrocketed in 2000 and home prices doubled over a period of four years, thanks in large part to Bay Area commuters.
Homebuilding in the Central Valley skyrocketed in 2000 and home prices doubled over a period of four years, thanks in large part to Bay Area commuters.
"It was a cheaper source of housing, the investors, there was a lot of greed in the market, everybody got very greedy, and everybody wanted to make a quick buck," said Matt Davies of Partners Real Estate.
Stockton now has the highest foreclosure rate in the nation, more than 8,000 foreclosures for the first part of this year, which is one foreclosure for every 27 households. This is a 256 percent increase compared to the same time period last year.”
One out of every 27 households is in Foreclosure in Stockton? Can it get any worse? I think so.
Foreclosures sold at auctions will further depress Real Estate in neighborhoods with high foreclosure rates. Homeowners still surviving on hopes and dreams want a return to EZ Home Equity Loans and Slam Dunk Refis. But that nastiest of all four letter words, D-E-B-T, is now now on everyone's tongue. No one will buy your debt off you if they can't afford or no longer qualify for "Liars Loans".
The Ponzi Economy is collapsing, and what is happening in California's Housing Market will surely be trumped by what is about to happen in South Florida.
In a Huffington Post from Eric Linden, we are reminded on the One Truth which American Schools need to drive into the heads of all students . . .
Credit is NOT Money
Or as Linden explains it . . .
“We are in the beginnings of the collapse of a fiat currency. Actually, it's the collapse of a type of credit that has been treated as though it was currency, but it's rise and fall closely mimics the natural history of fiat currencies.
In a Huffington Post from Eric Linden, we are reminded on the One Truth which American Schools need to drive into the heads of all students . . .
Credit is NOT Money
Or as Linden explains it . . .
“We are in the beginnings of the collapse of a fiat currency. Actually, it's the collapse of a type of credit that has been treated as though it was currency, but it's rise and fall closely mimics the natural history of fiat currencies.
Back in the 19th century banks would issue their own currency, backed by government bonds that would be held as security by the Treasury Department. Starting in the 1990s, financial institutions began doing something like this again, although this time around the currency has been the triple-A rated tranches of mortgage-backed securities (MBS) and collateralized debt obligations (CDO). And, while our forbears in the 19th century could assure themselves that a bank note was supported by the credibility of the U.S. government, this new currency was backed by the paid-for opinion of the rating agencies.
Assured by Triple-A ratings that these instruments were money good and completely liquid, bankers thought they had discovered the philosopher's stone -- a risk-free, high-yielding asset -- and this new credit/money has found its way into every corner of the financial system from teacher's pensions to commercial paper to money market funds.
Moreover, once the printers of this new fiat currency realized that there was an appetite for their product among yield-starved institutional investors, they did what every unrestrained ruler with a printing press has done since the dawn of money: they began minting more of it.
In this case, credit/money was inflated through the re-securitization of already securitized assets. The Mugabes of hyperinflation in this case were the rocket scientists in structured finance, and the Zimbabwian extreme are so-called synthetic CDOs, arcane confections which invest in tranches of CDOs.”
(Rock’s note: there is an excellent, easy to understand video in the next link explaining how crap Mortgage Backed Securities of the highest risk, i.e. sub-Prime MBS’s, were bundled and then sliced into five tranches, the highest being rated AAA. Trust me. This short video will finally click on a lightbulb in your mind if you’ve had trouble understanding how MSBs were packaged and sold off in “tranches”. When you master this concept of MSB’s being slided into tranches, and how through alchemy, very risky securities were suddenly turned into AAA paper, you are on your way to understanding how the Ponzi Economy is built on air.)
Continuing on with Linden’s post:
“These "innovations" leverage the underlying subprime assets to dizzying multiples so that tens of billions of dollars in subprime originations might ultimately support a trillion dollars in CDO tranches. At the tail end of this whip, tiny variances from the assumptions about the performance of the underlying assets can vaporize the value of these supposedly rock solid assets.
This new fiat currency exploded during the period of skyrocketing home price appreciation, but it should be noted that almost everything worked during that period. What securitizers and holders are discovering, however, is that a fiat currency rests on nothing more than the willingness of someone else to accept it. And, now that the market, most ominously the vast commercial paper market, has discovered that credit is not money, the contraction has begun. The question of the moment is whether anything can be done to slow it, much less stop it?
If the Federal Reserve lowers rates, it risks a precipitous fall in the dollar and a big rise in long term rates, which would only worsen the situation for over-indebted consumers and homeowners. Similar risks accompany other Fed strategies by which they might inject liquidity (the only reason that the euro did not fall more after the ECB's massive liquidity injection was that central bankers around the world were all doing the same thing).”
Most likely, the best we can hope for is an orderly blood-letting with pain apportioned where it is deserved. The device that might help accomplish that might be a public-private corporation (largely funded by the big banks that promoted and profited from this mess) set-up to exchange currently illiquid CDO/MBS tranches for tradable notes in the enterprise.”
Rock’s note: . . . and who will force these big banks to fund such an effort? The Big Banks ARE the banking cartel which has the Federal Reserve operating in their behalf. Any bailout will surely have banks and the government, i.e., We the People, bailing out the wealthiest members of our society who took on the most risk, in my opinon.)
Linden ends . . .
“This will not solve the many other problems attending this credit contraction (including counter-party risk in the CDS market), but it will buy time, and time is everything when bills come due. We've done this before (Felix Rohayton's creation nicknamed Big MAC calmed markets during New York City's financial crisis in the 1970s), and it will help supply liquidity and price transparency in this vast market. A fix like this won't much reduce the pain for either investors or overstretched homeowners, but it could reduce the growing risk of panic, paralysis and systemic collapse. It will also minimize moral hazard by doling out financial punishment mostly to those who deserve it."
To which I will ask, “Where is Elliot Spitzer when we need him most?”
Lastly, I will link you to an excellent short video of CNBC’s Power Lunch. This short video segment, titled “Burning Down the House”, is an outstanding explanation . . . with simple flip chart graphics . . . showing how Mortgage Backed Securities are packaged, sold, and resold again.
Steve Liesman, CNBC’s Senior Economics Reporter, also explains how you can take the worst “junk” paper, i.e. sub-Prime loans, and repackage them with a twist so they got AAA ratings with high returns (while the Housing market was going great guns) and how these AAA rating products are now prone to major blow ups wiping out billions in wealth.
As I have yet to learn how to post videos directly to my blog wit a big start button, I will simply ask you to click on the following red highlighted title of the video short’s title here: “Burning Down the House”.
And as always,
Caveat Emptor
No comments:
Post a Comment