Links 12/26/09


  1. fresno dan

    Insecure Securities Hans-Werner Sinn Project Syndicate
    “or years, hundreds of billions of new mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) generated from them were sold to the world to compensate for the lack of savings in the United States and to finance American housing investment. Now virtually the entire market for new issues of such securities – all but 3% of the original market volume – has vanished.”

    “Americans now claim caveat emptor : Europeans should have known how risky these securities were when they bought them. But even AAA-rated CDOs, which the US ratings agencies had called equivalent in safety to government bonds, are now only worth one-third of their nominal value. Europeans trusted a system that was untrustworthy.”

    Hey, you weren’t the only ones!!! And I agree with the article – at some point people start to see through the US FED and Treasury shenanigans and their rather bizarre belief that the US exists for the benefit finance, instead of the other way around.

    “An even better solution would be to go the European way: get rid of non-recourse loans and develop a system of finance based on covered bonds, such as the German Pfandbriefe . If a Pfandbrief is not serviced, one can take the issuing bank to court. If the bank goes bankrupt, the holder of the covered bond has a direct claim against the homeowner, who cannot escape payment by simply returning his house key. And if the homeowner goes bankrupt, the home can be sold to service the debt.”
    I think the article has lots of good points, but I don’t care for this solution. Because of the big bubble, many people owe far more on the house than its worth – now maybe this plan would keep bubbles from forming, but I do not think people should be on the hook for more than something is worth.

    1. DownSouth

      That article provides quite an amazing summary.

      The “private” MBS and CDO mills have imploded, and into the breech has stepped the US government. And apparently there is no limit to what the US government is prepared to do in order to keep the credit flowing to those who want to buy a house:

      “Fannie And Freddie Receive Unlimited Future Funds To Stay Afloat”

      Question: Where would house prices be today if the US government had not stepped into the breech?

      Question: Isn’t the government–not only with loans but with subsidies to new home buyers–keeping house prices inflated?

      Question: Don’t all of us pay for these subsidies to both old and new homeowners? Is this fair to those who don’t own a home?

      Question: Much of the moral debate (see Steve Waldman in “Links Christmas Day”) is framed in terms of immoral, irresponsible homeowners pitted against immoral, irresponsible bankers. But shouldn’t moral, responsible homeowners and moral, responsible bankers, along with moral, responsible non-homeowners, have some voice in this debate?

      1. craazyman


        – Sen. Morrel B. Hazard, Esquire, PhD, MBA, AAA, AA and Baa-
        Chairman and Chief Apologist
        U.S. Government Office of Financial Industry Protection

      2. charcad

        The “private” MBS and CDO mills have imploded, and into the breech has stepped the US government. And apparently there is no limit to what the US government is prepared to do in order to keep the credit flowing to those who want to buy a house:

        This is the announced intent. We’ve had a lot of communiques like these in the past 18-24 months. I’m not sure these latest ones are any more accurate.

        Compared to the housing results obtained in Great Depression 1930s England these programs have been epic failures. Therefore it’s far from clear to me the real goals were the declared intentions.

  2. MyLessThanPrimeBeef

    A hint to the deer on the right – you whisper sweet nothings into her ear, not her eyelid.

    A question for all you Naked Capitalists: There are certain critters that thrive on a warmer globe. Should we have laws to protect them once the globe starts to cool? Sincerely, the Association for Preservation of Plants and Animals Risked By A Cooler Globe.

  3. michael

    Usually I give Hans-Werner Sinn high credibility, but the some conclusions he provides in his article are pretty nonsensical.

    That US home loans are usually non-recourse surprised many Europeans a lot (including me), but to conclude it is a central issue that needs to change is farfetched. What we need is 20% down payment plus non-recourse to balance the risks between lenders and borrowers.

    Also did I misconceive that Hypo Real Estate was threatening to blow up the whole German Pfandbriefe market before it was bailed by the German government to the tune of $150 billion and finally nationalized?

    1. charcad

      That US home loans are usually non-recourse surprised many Europeans a lot (including me)

      Some states are recourse. Florida as a judicial foreclosure state is an example. Not that this has mitigated re losses in the least. It simply changed the origins and destinations of the loss funds a bit.

      The potential for deficiency judgements possibly made speculative mortgages more obtainable. The speculative component in re was larger than in other states like CA and AZ. For a time waterfront lots and blocks of condos were bought and sold like shares of Berkshire-Hathaway stock.

      The subsequent deficiency judgements are mere legalistic neatness because the delinquents (natural or legal persons) are invariably one step away from US Bankruptcy court anyway. In my opinion the only effect was to drive up foreclosure costs via increased legal fees, thus increasing final lender losses.

      Legal fees and the prospect of being responsible for association fees are becoming effective deterrents to FL foreclosure. BoA and Citi are demonstrating this in a new condo development less than one mile from me, and for which most of the mortgages were purchased by these two in 2008-2009.

      There have already been multiple foreclosure actions against the same FL properties arising from delinquent dues owed to deeded homeowner associations. viz, Lender (or Mortgage Servicer) launches foreclosure action, takes legal title and then fails to pay deed mandated association fees. Association in turn files its own lien and forecloses 12 months later or sooner. The most modern associations have very aggressive provisions for fee collection. These were originally created by the developer with an eye for that period when the developer would control the association.

      What we need is 20% down payment

      Clearly everyone involved needs to have serious stakes in the game. Hans-Werner Sinn’s only contribution was to repeat something Yves has said for years: originating banks need to be forced to keep a stake in the game and ideally should have a physical presence in the communities where they lend.

      plus non-recourse to balance the risks between lenders and borrowers.

      The only way recourse judgements might be made effective deterrents is by reopening debtors’ prisons or human slave markets. Outcomes that may not be far away.

  4. LeeAnne

    I’m not sure I understand how this all works.

    Is it something like the government’s intention is to hold up fraudulently inflated home prices by any means possible while the people living in them who already have less than they need to pay current and future increasing mortgage payments are trapped in those homes because if they abandon their fraudulently inflated and occupied homes that cannot be sold because there is no market at the current prices being artificially maintained by the government that protects the securitization fraudster talents’ incomes and profits with taxpayer’s money that cannot be made available for the taxpayers own basic health care insurance, they, the home owners/squatters in their own homes, will have ruined whatever credit or potential credit they may acquire, will never be able to buy another home unless they stay and take their chances with this one? So they are prisoners of the system –uncertain of their future and hoping TPTB will be merciful?

    -instead of TPTB and TBTF together supporting and trusting the market and allowing the laws and principles embedded in the constitution to sort things out? Laws like, people are entitled to their day in court before their homes can be confiscated? and mortgage holders are required to present a deed of ownership -something like that, before they are authorized to access the courts to prosecute foreclosure and eviction against mortgage holders/home owners, but that protection of the law is being denied because the securitization tunneling scheme of the sellers/mortgage holders is TBTF?

    If allowed to work, the court system would figure out who really owns each of these houses quickly enough. And derivatives would automatically be reformed and transparent after everyone involved loses a few bucks -so, a few $trillion -better spent restoring rule of law and the constitution than the way its going now -like to foreign banks, for instance.

    But Congress and the Executive branch are scared to death of the law. To them the law is like the cross held up to Dracula and I’m afraid they’ll declare war on their own citizens to maintain their resistance to the law, if in fact, they aren’t already at war with the American people since the events of 2001 were allowed to occur like three buildings and their inhabitants demolished while only two buildings were hit: if the law were allowed to operate, the bloodsucking of taxpayers would stop and the arrests would begin. What say our federal prosecutors? Have they been restrained from speaking out?

    A strange, eerie silence out there in law enforcement land.

    A couple of insider trading arrests? Har har har -a few ponzi fund fraudsters doing the perp walk for the cameras? har har har so it can be made to appear to the public that the culprits are hedge funds, a couple of errant UBS salesmen –those anonymous guys and not the guys like all the TBTF with the members of the highest levels of government: Bush and Cheney, Paulson, Timmy and Bernanke and now Obama and Rahm Emanuel right out in the open?

    Goodnight and Happy New Year everyone. I take no pleasure in writing this stuff; I am certainly grateful for the opportunity, not to vent, but to clarify.

    I just hope plain English, the only way I know how to talk about this stuff, will help a few interested people and myself to understand better what’s going on and especially about what REAL people are suffering.

    Thank you. Criticism and corrections are welcome.

  5. DDD

    – Sen. Morrel B. Hazard, Esquire, PhD, MBA, AAA, AA and Baa-
    Chairman and Chief Apologist
    U.S. Government Office of Financial Industry Protection

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