Monday, September 30, 2013

Put Them in Jail?


Budget Issues and Mortgage Matters

 

 

Tea Party Plays with Fire and Gasoline;
 Doesn’t Care Whether It Starts an Inferno
 

The bad news is the House GOP is controlled by its crazy caucus, the Tea Party. The worse news is that they are so single-minded in their disdain and belligerence that they think they can shut down the government for a few days and nothing bad will happen and then go onto force the US to stop paying its bills, with similar marginal repercussions. 

They are batshit daft! 

They‘ve been told and lectured by major business experts, lobbyists, and their own Republican economists that you can’t screw around with the US debt rating and not have horrendous consequences which will reach into every one of their politically safe tri-cornered districts and drive up prices across the board for their constituents and the rest of us. 

Actions do have consequences and these petulant, simple-minded and mostly GOP Representatives seem unaware of anything which occurs outside their little coven. 

Initially, part of me admired the TP's consistency and non-deviation from what they perceive was their constituents’ priorities. But that glow wore off soon, because also they also were elected to participate in a  broad democratic governing exercise--called the United States Congress--which impacts far more than “George and Harriet back home in Mayberry” (or wherever they’re from). 


Shutting down the federal government for a few days is now small potatoes, but If the conservatives force the government to miss paying its bills, because they oppose new healthcare laws, not only will there be an immediate actionable short term response but the future likely will produce an interest rate “event risk” hike from institutional investors, who buy US government securities. This market will want higher yields to protect them the next time these wool headed wingnuts go off the reservation. 

And don’t look for more than an occasional constituent retribution against the TP’s foolishness, because the real value of all of those GOP state legislative victories insure that most of the Teapartiers  will come back to Congress, if they can stomach it, or be replaced by even more reactionary elements. State Capital gerrymandering made most of the districts which produced the current crop of right wingers heavily conservative. 

What I predicted five weeks ago about the GOP “circular firing squad budget exercise” is coming about, with the House passing something destined to lose and the Senate passing some short term fix to bail out the nation’s ass.

I don’t envy John Boehner (R-Ohio) and Eric Cantor (R-Va), but they made their political beds and now….  

 

Totally idle Maloni fantasy, but a few weeks ago—looking at the above unfolding—I wondered if the Treasury, given how “helpful” earlier Fannie and Freddie dividends eased the revenue crunch, might want to ask each company to somehow prepay its quarterly Treasury obligations (which is a sweep of all cash earnings, minus capital), with cash on hand, to provide the government additional flexibility if the same squeeze occurs in a few weeks. The exact earnings, while not certified likely can easily be estimated. 

I suspect that such a plan doesn’t need congressional blessing. Treasury also could encourage Freddie to use its Deferred Tax Account (DTA) proceeds to up the current payments, too, which could mean an additional $40 Billion or so (because of the DTA) coming to Treasury mid-October, as things get tight on the debt side for Jack Lew and the nation.

A lot of obstacles to this occurring, but bureaucrats have a way of getting very creative when absolutely necessary. 

It’s all just Maloni “geezing,” no substance to any of it. If it ever did happen, F&F wouldn’t get any credit for doing it, just more back of the hand. But the irony of F&F riding to the government's short term rescue is delicious.
 

 

Speaking of “a few weeks ago,” a few weeks ago—along with my ongoing warnings to keep a careful eye on all of the big bank mortgage machinations-- I speculated that folks enamored with the new private label jumbo lending (do to get a jump start when F&F regulator FHFA shaves the size loans they can acquire/securitize), better be wary because lack of liquidity and the absence of F&F standards scream “caution.” 

As if to underscore the concern I offered then, the following article appeared last week in Inside Mortgage Finance. 

By Brandon Ivey


Moody’s Investors Service warns in a new report that some of the hard-to-analyze features seen in non-agency MBS issued before the financial crisis are starting to make a comeback in new jumbo deals.
The features include super senior support bonds, exchangeable securities, principal-only bonds and pool interest-only bonds.
The rating service notes that the features allow issuers to offer senior bonds with a variety of cash flow allocations to match investor risk appetites and yield requirements. Moody’s says the features introduce complexity to the growing jumbo MBS market.
“These securities pose analytical challenges because their risk profiles are affected not only by the absolute level of losses and prepayments but also by their timing,” Moody’s writes. For more details on the complexity of new jumbo MBS, see this week’s upcoming issue of Inside MBS & ABS.

It reminds me of the time, President George W. Bush proclaimed:
“Fool me once, shame on you….Fool me, you can't get fooled again.”


 

 

Regulatory Lassitude

Pretty tough complementary exchange last week on “Yahoo Finance” between Barry Ritholz, whose columns I often link, and Yahoo’s Jeff Macke. 

A "I'm mad and I can't take ti anymore" Macke threw out a thought provoking suggestion about the big financials, which should be clear to anyone was less about JP Morgan Chase—a better managed than most of the TBTF institutions—and was more about how our flabby US financial regulatory regime treats the biggies. 

Our regulators seem to do a fabulous job forcing the behemoth financial institutions to pay fines after the fact, but they are not very good at shutting or slowing down bank recidivism, as I’ve documented in any number of previous blogs.  

As Macke and Ritholz agreed, those heavy financial penalties just become “the cost of doing business.”




Let me follow that up with a TIME magazine column from Nobel winner Joseph Stiglitz. 


The relevance of regulatory talk is to remind Congress, as it tries to reshape the nation’s, mortgage finance system to be aware of the limits of the regulatory regime as well past mistakes which easily could occur again.



Maloni, 9-30-2013

 

4 comments:

Bill Maloni said...

Here's David Gergen's column, today, with his twin takes on the government shutdown and the risk of not increasing the debt ceiling.

http://www.cnn.com/2013/09/30/opinion/gergen-shutdown/index.html?hpt=hp_t4

Robert Mae said...

Bill, you can't one hand claim the govt hasn't the ability to rework the mortgage industry, and on the other support Obamacare.

I say healthcare and everything else should put on a backburner until the govt provides proof of efficiency. In other words, yeah, shut the mess down. Pay the bills but send the mouth breathers like Corker home.

Duncan MacLeod said...

Bill- with the 3 banks settlements at the end of Q3- wonder what will be the chances of the GSE breaking out the 184 Billion draw.
How much was for:
DTA Allowance.
Paying the Draw itself- compounding the divi rate
increased reserves- some necessary some over the top
actual Mtg losses
Paper losses on Interest swaps-derivatives- and some realized.
How much was put back to banks
how much was settlements w banks

Duncan MacLeod said...

Bill- with the 3 banks settlements at the end of Q3- wonder what will be the chances of the GSE breaking out the 184 Billion draw.
How much was for:
DTA Allowance.
Paying the Draw itself- compounding the divi rate
increased reserves- some necessary some over the top
actual Mtg losses
Paper losses on Interest swaps-derivatives- and some realized.
How much was put back to banks
how much was settlements w banks