Comments on naked capitalism: Systemic Risk From an Outsized Fannie and Freddie?...

Dave,I didn't see the Volcker interview (I pretty ...

2008-03-19T17:52:00.000-04:00

Dave,

I didn't see the Volcker interview (I pretty much don't watch TV) but put a link to some quotes in the Links for 3/19.

Re Volcker: he did something politically unpopular and badly needed at considerable personal cost (his wife was very ill then, so it was not a good time to be on a Fed chairman's salary. A lot of people on the Street were worried he'd quit).

The immediate pain did fall on workers due to a rise in unemployment. But the recession, although nasty, wasn't overly long. And had inflation stayed at its stagflationary levels, businesses would have continued underinvesting and you would have seen steady erosion in employment as the workforce kept growing but jobs didn't (or contracted gradually), but over a longer period.

Sadly, the working man always takes it on the chin when capitalists screw up.

Mr. Volcker spoke at length last evening on Charli...

2008-03-19T09:12:00.000-04:00

Mr. Volcker spoke at length last evening on Charlie Rose's show. He is all in favor of Freddie Mac and Fannie Mae getting back to, in his words, "their original purpose" to manage mortgages in crises. He also made interesting observations re the Fed and Bear Stearns; in sum, that SOMEBODY needs to do what the Fed is doing, but that it should not be the Fed - meaning more direct government intervention (and future regulation of all those inventions that have brought us to here.) I don't claim to be a Volcker fan as much as I notice some others here are, as I recall life in the early 80's when inflation was wrung from the working class; but it was refreshing to hear yet another experienced voice, from the generation that precedes mine, acknowledging that this is no time for dogma...

As a global recession looms, is there any way to h...

2008-03-19T03:08:00.000-04:00

As a global recession looms, is there any way to halt the slide?

http://www.dailymail.co.uk/ pages...in_page_id=1770

The bearded Bernanke, who took over the Fed from the legendary Alan Greenspan last summer, has spent most of his adult life as an academic at the Massachusetts Institute of Technology studying the circumstances which led to the Great Depression of the 1930s.

He is acutely aware of the risks of contagion, when the problems of one financial institution spread to another and you face a systemic crisis across the whole business landscape.

He also knows that the great mistake made by central banks in the 1930s – and more recently, in the Japanese financial crisis of the 1990s – was to sit on their hands and hope it will pass.

Bernanke knows that when you are in the eye of a financial storm, only dramatic and urgent action can help stave off a full-blown crisis.

That explains why, a week ago, Bernanke promised ailing banks that the Fed was willing to make available up to £100billion of cash in exchange for almost any security they would care to offer, including sub-prime mortgage loans.

The fact that greedy and incompetent banks would be saved, thus overturning the principle of moral hazard, doesn't matter.

As Alan Greenspan told this paper last September, in a banking crisis such as that caused by the collapse of sub-prime mortgages, the central bank has to act, even if it means rewarding the "greedy and egregious".

It is up to the law authorities to deal with those responsible afterwards.

ritain, so closely connected to the U.S. through the role of the City in global finance has, with the best will in the world, been painfully slow in recognising the threat.

Indeed, the complacency of last week's maiden budget by Alistair Darling was, in retrospect, shocking.

Unless the Government wakes up to the scale of the crisis we are facing, then this may yet be seen as the point of no return for New Labour as it seeks to hang on to power.

Would it be too tacky to point out that if the ban...

2008-03-18T22:43:00.000-04:00

Would it be too tacky to point out that if the banks had adhered to the required standards of fiduciary care that none of this would have happened?

Or would it be wrong of me to note that this is yet another "unintended" consequence of revising the bankruptcy law so that the borrower can't dump the unsecured loan, but can dump the secured loan?

How tasteless is it really to note that Bernanke's definition of inflation was only wage inflation and that asset inflation was A-OK with him? But now that wages haven't kept up with asset inflation, most people (not just poor people (and really, why don't those poor people just crawl off and die quietly after serving The Company for thirty years?)) are pinched and pinched hard.

Just a passing thought. Or two.

BNP Paribas from the Fed Flow of Funds data: In Q...

2008-03-18T14:53:00.000-04:00

BNP Paribas from the Fed Flow of Funds data: In Q3 07, combined GSE and FHLB new borrowings annualized were 14% of GDP; only slightly smaller in Q4. Mortgage market already nationalized. Suggests the black hole that this market is turning into. Bernanke's pittances will be swallowed up in a trice.

Oh, the irony.On a thread about systemic risk, a d...

2008-03-18T14:49:00.000-04:00

Oh, the irony.

On a thread about systemic risk, a disgusting spammer posts his contribution -- a link to a website enabling liar loans.

Yves, could you please forward his information to the SEC after you delete it? Thanks.

Since we're losing, let's change the rules.

2008-03-18T11:40:00.000-04:00

Since we're losing, let's change the rules.

http://www.fakepaycheckstubs.com Need proof of inc...

2008-03-18T11:08:00.000-04:00

http://www.fakepaycheckstubs.com Need proof of income? No Job? Need to refi? get the loan you deserve!

"The foreign central banks and related institution...

2008-03-18T06:34:00.000-04:00

"The foreign central banks and related institutions have made clear to the US government that it will be held responsible for the GSEs' debt."

They may have made it clear, but I hope the U.S. government told them to take a walk. The U.S. government has made it clear that the full faith and credit of the U.S. is not behind the Agencies. If foreign central banks have then bought the Agencies to get a few bips more in yield, that is their problem. They were greedy, they took the risk, and now they should pay.