Comments on: No Exit: Will "A Short Financial Crisis Become a Long One"? http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html Mon, 23 Nov 2009 06:07:28 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Anonymous http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4982 Anonymous Mon, 10 Mar 2008 23:13:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4982 Usually wealth distribution goes from the average citizen to the wealthy. That's how the system is structured. It's great to watch the transfermation in reverse. Listen to 'em whine about it. You don't hear nearly as many excuses and complaining when the "average Joe" loses to Wall Street. Ya gotta love it! Usually wealth distribution goes from the average citizen to the wealthy. That’s how the system is structured. It’s great to watch the transfermation in reverse. Listen to ‘em whine about it. You don’t hear nearly as many excuses and complaining when the “average Joe” loses to Wall Street. Ya gotta love it!

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4977 Anonymous Mon, 10 Mar 2008 20:18:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4977 The "implicit guarantee" goes back a long way - to before Fannie was private - do remember that it started out as a New Deal gov't agency, with a near monopoly on mortgage securitization - in 1968 when Fannie was partially privatized, all Mortgage Bankers who wished to remain approved underwriters had to buy the stock, and lots of it (it was sold in a way as a "security deposit" for their book)- most of them moaned and groaned (the ones I knew were apoplectic), but did so - later, as Fannie stock climbed, most claimed they had known all along (naturally)<br/><br/>So, when Fannie was privatized in 1968, it still needed an implicit guarantee (Ginnie took over the explicit guarantee biz, but Fannie still had some overhang, IIRC) - and, of course, Freddie came along to prevent Fannie having a monopoly - and it naturally needed the same advantages as its older sibling<br/><br/>Thus, Ginnie with explicit, and Fannie and Freddie with implicit - a real mess, as we now know<br/><br/>That's it for today's rant,<br/>fatbear The “implicit guarantee” goes back a long way – to before Fannie was private – do remember that it started out as a New Deal gov’t agency, with a near monopoly on mortgage securitization – in 1968 when Fannie was partially privatized, all Mortgage Bankers who wished to remain approved underwriters had to buy the stock, and lots of it (it was sold in a way as a “security deposit” for their book)- most of them moaned and groaned (the ones I knew were apoplectic), but did so – later, as Fannie stock climbed, most claimed they had known all along (naturally)

So, when Fannie was privatized in 1968, it still needed an implicit guarantee (Ginnie took over the explicit guarantee biz, but Fannie still had some overhang, IIRC) – and, of course, Freddie came along to prevent Fannie having a monopoly – and it naturally needed the same advantages as its older sibling

Thus, Ginnie with explicit, and Fannie and Freddie with implicit – a real mess, as we now know

That’s it for today’s rant,
fatbear

]]> By: newsman http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4974 newsman Mon, 10 Mar 2008 19:25:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4974 In recent days a lot of the commentary has been at the 20,000-foot level, concerning interest rate policies, TAFs, credit markets, spreads, etc. etc.<br/><br/>But the real action is at sea level. It seems to me that the outcome of all of this has to do with the magnitude of mortgage defaults around the country. Markets are responding to a worst-case scenario in that regard, and in so doing, may be helping to make the worst-case scenario a reality.<br/><br/>Nonetheless, the problem is real--too much money spent on too many home mortgages -- many of which will not be paid back. How many, and how much money? That's the big unknown in the equation. In recent days a lot of the commentary has been at the 20,000-foot level, concerning interest rate policies, TAFs, credit markets, spreads, etc. etc.

But the real action is at sea level. It seems to me that the outcome of all of this has to do with the magnitude of mortgage defaults around the country. Markets are responding to a worst-case scenario in that regard, and in so doing, may be helping to make the worst-case scenario a reality.

Nonetheless, the problem is real–too much money spent on too many home mortgages — many of which will not be paid back. How many, and how much money? That’s the big unknown in the equation.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4970 Anonymous Mon, 10 Mar 2008 17:54:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4970 Can someone explain where this "implicit guarantee" is documented?<br/><br/>When I look at agency paper, I see gigantic disclaimers that the debt is not backed by the US Government. I don't know how the agencies could make it any clearer that their debt has no government backing whatsoever. But despite these <b>explicit</b> disclaimers of government backing, I keep hearing about some <b>implicit</b> guarantee.<br/><br/>I think the "implicit guarantee" is all wishful thinking by the markets. The debt is not backed, it says it is not backed, and anyone expecting the government to back it has a hard time coming. Can someone explain where this “implicit guarantee” is documented?

When I look at agency paper, I see gigantic disclaimers that the debt is not backed by the US Government. I don’t know how the agencies could make it any clearer that their debt has no government backing whatsoever. But despite these explicit disclaimers of government backing, I keep hearing about some implicit guarantee.

I think the “implicit guarantee” is all wishful thinking by the markets. The debt is not backed, it says it is not backed, and anyone expecting the government to back it has a hard time coming.

]]> By: Bill http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4969 Bill Mon, 10 Mar 2008 17:40:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4969 Questions: <br/>Is a lower Fed Funds rate inflationary when the velocity of money seems to be screeching to a halt (thus the wider spreads on all sorts of loans)? My recollection of the textbooks is that they referred to "interest rates" and never made a distinction about which one(s) of many they were referring to. <br/><br/>Wouldn't some inflation eventually (couple years?) help relieve this problem since the solvency issue would be greatly reduced if our entire price level, including house prices, made a one-off jump of 25%? (Leaving aside the issue of how we convince ourselves that it was just a one-off jump) Questions:
Is a lower Fed Funds rate inflationary when the velocity of money seems to be screeching to a halt (thus the wider spreads on all sorts of loans)? My recollection of the textbooks is that they referred to “interest rates” and never made a distinction about which one(s) of many they were referring to.

Wouldn’t some inflation eventually (couple years?) help relieve this problem since the solvency issue would be greatly reduced if our entire price level, including house prices, made a one-off jump of 25%? (Leaving aside the issue of how we convince ourselves that it was just a one-off jump)

]]> By: dis http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4968 dis Mon, 10 Mar 2008 17:32:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4968 ooops, indeed you are and it was a good post! ooops, indeed you are and it was a good post!

]]> By: Yves Smith http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4960 Yves Smith Mon, 10 Mar 2008 11:24:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4960 I'm ahead of you. I <a HREF="http://www.nakedcapitalism.com/2008/03/on-krugmans-worries-and-breakdown-of.html" REL="nofollow">wrote about his posts Sunday</a>; his article, which covers pretty much the same ground, is in the links for today. I’m ahead of you. I wrote about his posts Sunday; his article, which covers pretty much the same ground, is in the links for today.

]]> By: dis http://www.nakedcapitalism.com/2008/03/no-exit-will-short-financial-crisis.html#comment-4959 dis Mon, 10 Mar 2008 10:16:00 +0000 http://www.nakedcapitalism.com/2008/03/no-exit-will-a-short-financial-crisis-become-a-long-one/#comment-4959 yves, you should check out the extremely interesting, informative, and . . . yes . . . scary two posts on what ben is doing at krugman's blog and his column today. yves, you should check out the extremely interesting, informative, and . . . yes . . . scary two posts on what ben is doing at krugman’s blog and his column today.

]]>