Mark this day: The worst is over
Perspective: The medal winners and booby prizes
By Lou Barnes, Friday, September 19, 2008.
Mark this day: The worst of this crisis has passed. However, not yet the halfway point in time: We are 13 months into this wreck, and you'll sure as hell feel credit-market distress 13 months from now even though the greatest risk has passed.
I wrote last week that I heard "hoofbeats of cavalry on the way" -- for a while this week it looked as though John Wayne had arrived to shoot the settlers and give firewater to the Apaches.
Until yesterday the nation labored under the illusion that this crisis was a financial matter: banks and markets thrashing around, remote from Main Street, something that would either solve itself or be calmed by usual means. In reality, of course, the financial matter was not remote and had been hopelessly lost by August 2007.
Now this crisis is officially public property, in the political sphere, put there by final disaster on Wednesday, formally acknowledged today by the Fed, the Treasury, the president, both houses of Congress, and both major parties and their presidential candidates.
Before post-mortem, medals and booby prizes, a brief timeout for the real world. The economy is sinking and will continue to do so, partly because it must to pass the inflation pig (no lipstick) still moving through the national python. New claims for unemployment insurance are continuously rising beyond forecast, 455,000 weekly now, and housing is not close to bottom as new builds fell to a 17-year low last month.
Mortgage rates have risen to about 6.125 percent, a wrecked credit system unable to create leverage to support higher prices for $5 trillion in mortgage-backed securities and lower rates. However, a somewhat less distracted Treasury Secretary will go to work on that problem shortly. So he said today (again). He and everybody else knows that mortgage credit must be unlocked for housing to bottom.
The authorities, including those in the White House and Congress, have obviously been working on today's fix for months. Fed examiners have been inside securities firms since June for the first time ever, "lifting the kimono" to discover the Street's secret losses. Thus we have an initial funding amount -- not enough, but most to be recovered one day.
The authorities could not go public with planning until the market damage was so severe that a majority of both parties in Congress was willing to go along. The most difficult part of the journey ahead: helping the American people to understand, and to stay together despite contrary charlatans by the thousand.
Top honor: to Professor Bernanke. Quiet, no grandstand, the technician with the life-study knowledge of 1930 and the determination to prevent 1932.
An honorable discharge, no medal: to Hank Paulson. You hire an investment banker to look around corners for you. Relentlessly surprised, annoyed at the waste of his valuable time, "Hank" has only recently discovered that there are corners.
Medal of Honor: Tim Geithner, N.Y. Fed prez. If we are very, very lucky, this extraordinary man will stay in public service for awhile longer.
The boobs ... oh my: Start with CEOs and boards of the failed firms. Name them, publicly humiliate them, and then shun them. Forbid them ever again to participate in a public company. That's authentic "moral hazard."
The "liquidationists": Find the hottest corner in Hades for those who thought (and still think) that mass bankruptcy and liquidation will bring proper punishment, future caution and recovery. The Lehman butchery led directly to the AIG bloodbath and total system meltdown. Andrew Mellon, Herbert Hoover's Treasury Secretary in 1931: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate ... and recovery will follow in a few months."
Another high honor goes to the irrepressible American spirit under pressure. On Tuesday, news crackled over Lehman's in-house squawk box that Barclay's Bank would buy half the wreckage, and perhaps 10,000 people, many of whom lost their life savings, would still have jobs. Then the box played "God Save The Queen" to cheers.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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Submitted by RK Ruthman on September 19, 2008 - 3:31pm.
Don't get me wrong, I respect anyone brave enough to speak their mind, but...
Your words are bold, (just like the banner behind George W. on the deck of the USS Abraham Lincoln):
"Mission Accomplished"
That was over 5 years ago...
I also think we are more than 13 months into this. Things were brewing and news was surfacing in the spring/summer of 2005.
Actually, I would like to know how many government officials own preferred stock in the "rescued" companies of Fannie Mae & Freddie Mac...that would be interesting news.
Submitted by Kathy Judy on September 19, 2008 - 4:01pm.
One of the best columns I've read - I read it to our office and printed it out to refer to as it explains this crisis and the solutions really well. Thanks
Submitted by Mark Eibner on September 20, 2008 - 6:41am.
More smoke and mirrors. It's just not the American people being lead by the MSM news beast, take a look at the European mortgage markets, driven to dust by the power and greed behind centralized PRIVATE BANKING.
Our country was been taken without firing a shot. The federal government and the IRS goons steal from each of us..to pay the interest debt (made from nothing and backed by nothing) to the private bankers. Its the coolest scam in history...and if you follow the money, you will see that this is what history really is.
Why would a country invade us? To make us slaves? We are already willing slaves to pay interest debt to bankers collected by the government.
Do you guys not understand that the Federal Reserve is not FEDERAL at all. The Federal Reserve (The Fed) is a private company (PRIVATE, do you get it?). The Fed prints US currency. The Fed can not be audited by the IRS or even congress. Profits of The Fed go to its share holders, not the US Govt. The US Debt will approach $10 Trillion dollars.
Do the math, this mess is a 2T deal (they claim 500B). The S&L was over 1T all said an done. Take what we owe already...and we are in the 10T market.
There are roughly 100 million households in the USA. $10,000,000,000,000 divides out to $100,000 per household.
Here's a more concrete benchmark: the replacement cost of America's housing stock -- every house, duplex, condo, apartment and trailer, from sea to shining sea -- is roughly $10T. Yep, we are max out. 100% financed in the USA.
Take a watch of Dr. RonPaul telling Ben where to go:
http://www.youtube.com/watch?v=viEwZItCXdc
The debt condition of the United States is an important factor in the success of the economy and therefore of your employer. Yet most voters pay no attention to government debt. They assume that Congress knows what it is doing. This is not a safe assumption.
Today, the Bank of England, the Bank of Japan and the Bank of China have more to do with the international value of the dollar than the FED does. Foreigners have become major players in our markets. Above all, salaried central bankers in Asian countries hold the hammer.
Now we face an election(selection) with two parties that BOTH will give us even more of the same. Change, what a joke. Ask any of our past politicians that tried to mess with the banking system. Lincoln, Jackson, Kennedy even Reagen and Ford. Of course it shows how gualable the American Public is and how little they know about history, about economics and about how mankind has always been "used" by the oligarch power crowd. There will never be change in the USA until there is REAL accountability in all three branches of government and this will never happen until we abolish the Federal Reserve and print and repay ourselves, our treasury with our OWN MONEY.
Mark Eibner
303.800.1006
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Submitted by Steve Simon on September 20, 2008 - 8:48am.
All they have done is take out the "Garbage" and clean up the roadside from debris...
They have not mandates that financial institutions fire (or worse) all who approved loans without there even being an actual property.
They have not removed the appraisal certification of all who signed off on criminal or at best culpably negligent appraisals (in fact in Florida the investigative staff was reduced during the time this debacle started and the present).
There has been no change in the law about CEO's and the like making mega-income parachute deals as they bankrupt their companies and send investors down the drain.
There is no firm policy as to who gets bailed out and who doesn't (Obama took over $500,000 from the secondary market players, but you will not see that as a Headline in the NY Times :)
Nope at best I would call this a "Cleanup" and a political one at best... The reasons it happened are still out there waiting to give a repeat performance...
What they have done with the "Cleanup" is devalue every Americans dollar,whether they were the careful ones or not!
Just my thoughts
If the answer to a complex problem is very simple, it is usually incomplete...
Steve Simon is the lead instructor at the Steve Simon School of Real Estate www.stevesimon.us
Submitted by Shannon Ziccardi on September 21, 2008 - 11:37am.
One candidate took alot of grief from his opponents this week and these developments certainly didn't help. You seem to be saying (in a different way) what he has said-that our economy is fundamentally sound. I happen to agree as do many others. The phenomenon of "consumer confidence" is the only thing keeping our economy from rbounding and lurching forward. I happen to believe that as soon as the presidential election is over (regardless of who wins), our economic recovery will be swift and unprecidented. We need to consider our own optimism for just a moment. It holds the key to our future and the ability to lift us from even our deepest funk.
www.aquicknote.net
Submitted by Christine Donovan - Costa Mesa Real Estate on September 21, 2008 - 4:11pm.
I hope your're right about the worst being over. However, I think we have a way to go before we'll know one way or another.
Site: Costa Mesa Real Estate
Blog: Costa Mesa Real Estate Blog
Submitted by Joe Almirantearena on September 21, 2008 - 8:54pm.
Lou, I love your optimism, but the worst is not close to over. It seems you're looking at this situation from the standpoint of a mortgage professional. Stepping outside of that perspective for a moment, and really considering the hows and the whys of what got America into this mess, there's absolutely no reason to believe the financial crisis is behind us. When you consider that lending guidelines were "relaxed" to a point of long-run unprofitability, for the sake of short run profits, by the financial sector, this crisis could just as easily be a pre-cursor for what's to come in the financial sector as a whole. If it is discovered that other guidelines were "relaxed" in other financial sectors, we could be due for a global meltdown, which would certainly affect us in the mortgage industry as well. Lets not mark this day, at all. Call me a pessimist, but there's probably much more to come.
California Mortgage Loan
Submitted by Commercial Mortgage Loans - Privately Funded - MasterPlan Capital LLC on September 22, 2008 - 7:21am.
Paulson did not create this mess. I, for one, am glade that, an investment banker was at the helm of Treasury during this particular crisis. He understands the business and knows the workings of all the companies involved. It is, after-all, a banking crisis and he is, after-all, a banker. Bush picked him because he could relate to Wall Street and had their respect. That relationship and that respect came in very handy last week.
MasterPlan Capital LLC
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Apply for a commercial real estate mortgage loan, online. Click here for a simple, 1 page commercial mortgage application, get an answer the very next business day.
Submitted by Ante Zoric on September 23, 2008 - 2:34am.
Well, i don't agree with you man. Let the market correct so that working people of my generation will be able to buy. And let the “smart croatia real estate investors” who took on too much risk be shown for what they are.