tag:blogger.com,1999:blog-27697009.post115484388303842091..comments2024-02-29T03:21:35.007-08:00Comments on The Great Depression of 2006 : Bernanke, The Mouse that Couldn't RoarJim in San Marcoshttp://www.blogger.com/profile/09435296419912935381noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-27697009.post-1157421223283301372006-09-04T18:53:00.000-07:002006-09-04T18:53:00.000-07:00Here's something to contemplate..Remember when Gre...Here's something to contemplate..<BR/><BR/>Remember when Greenspan puzzled over why long term interest rates failed to go up as much as short term rates? It was at that point in time that he called this particular phenomenon a 'conundrum':<BR/><BR/><A HREF="http://www.msnbc.msn.com/id/7038159/site/newsweek/" REL="nofollow">[Link]</A><BR/><BR/>Here we are again with Bernanke. Short term rates have flattened out and look like they may be starting to go down.. <BR/><BR/>Now, suppose that this time around, the Fed faces a different type of 'conundrum' in which long term rates go up while shorter term rates go down (at least for the time being).<BR/><BR/>Maybe we have reached the point in which the Fed is like the proverbial tail that wags the dog.<BR/><BR/>Just a thought..bubble_watcherhttps://www.blogger.com/profile/09754629981220575364noreply@blogger.comtag:blogger.com,1999:blog-27697009.post-1155396342315789612006-08-12T08:25:00.000-07:002006-08-12T08:25:00.000-07:00I agree with Anonymous completely. Unfortunately ...I agree with Anonymous completely. Unfortunately the real world sometimes changes the rules. Fannie Mae is so big that it is assumed by many that the government will step in to stop it from collapsing. Its the implied assumption that everyone is banking on.<BR/><BR/>The collapse of Fannie Mae is Game Over. Everyone looses.Jim in San Marcoshttps://www.blogger.com/profile/09435296419912935381noreply@blogger.comtag:blogger.com,1999:blog-27697009.post-1155357589322868002006-08-11T21:39:00.000-07:002006-08-11T21:39:00.000-07:00IF you go to the Fannie Mae website you will see t...IF you go to the Fannie Mae website you will see that these MBSs are not backed by the government. As a government backed entity, Fannie Mae just gets tax breaks, and breaks on other requirements that banks don't get--in exchange for loaning money to people who are too risky for banks.<BR/> If you buy MBS they are backed by Fannie Mae. If Fannie Mae goes belly up, then what you you get is nothing. Considering that Fannie Mae is the giant octupus at the center of the most disturbing lending practices of the housing bubble.<BR/> What is really troubling is that a great deal of MBS are held by pensions of many boomers. Today many boomers feel wealthy because of the values of their homes, and their portfolios. I think that we'll see a lot of this percieved weath evaporate in the next two years.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-27697009.post-1155185846246287502006-08-09T21:57:00.000-07:002006-08-09T21:57:00.000-07:00If the house was bought for 500,000 the MBS would ...If the house was bought for 500,000 the MBS would be for 80% or 400,000. In reasonable times its very hard for a house to loose 20% of its equity in a down market.<BR/><BR/>If the house is foreclosed and goes to a Trustee Sale, the bank has an automatic bid of 400,000 and the property is theirs with all secondary liens dropping off. If you bid 400,001 at the auction, you would be the lucky owner and the bank would have its full amount.<BR/><BR/>Now if the bank can't sell it without further loss, and its an MBS (Mortgage Backed Security), I believe they would return the item to Fannie Mae and Fannie Mae would pay off the loan that was attached to the MBS package or bundle of loans.<BR/><BR/>The bank through this mess, is just managing the Trust Deed for the holder Fannie Mae. The bank is managing these loans for a 1/2% fee. It might not sound like much, but if you turn over 200 half a million dollar houses in a year you'll earn a half million in management fees for the length of each loan.<BR/><BR/>What happens to the house from this point, I'm not sure. The note holder is going to want fast liquidation of the house in order to get capital back, for at least partial reimbursement of what had to be paid to the MBS fund holder.<BR/><BR/>At some point if enough loans drop in face value substantially below 80%, the package backing the MBS if marked to market, would force the question "Is the government backing these instruments with the full faith and credit of the U.S. Treasury." The answer has been assumed to be yes, only because Fannie Mae is a GSE (Government Sponsored Enterprise).<BR/><BR/>Notice how the Second Trust Deed goes to hell in a hand basket as soon as the trustee sale executes. It goes Poof!<BR/><BR/>I don't know that much about MBS's to know if they also deal in Second Trust Deeds. If there is such an animal, its going to be the first to be taken out, and shot!Jim in San Marcoshttps://www.blogger.com/profile/09435296419912935381noreply@blogger.comtag:blogger.com,1999:blog-27697009.post-1155164539688577032006-08-09T16:02:00.000-07:002006-08-09T16:02:00.000-07:00a little off the posted topic: for the sake of si...a little off the posted topic: for the sake of simplicity, let's just say there's one owner of a house, John, who's about loose the house from a foreclose due to no payment on his 5yr ARM and somewhere out there is Sarah who has offered this mortgage on that house... (i guess she's holding a MBS?)<BR/><BR/>when the home "owner" goes under and say that the house foreclosed at less than the loaned amount, and suppose it was "backed" by the US government, how will this now worth-less MBS be compensated by the government?<BR/><BR/>would sarah see the full amount right away? or would she see the full agreed upon payment cycle?<BR/><BR/>what is the incentive of sarah (or i guess the bank who is executing the foreclose) to try to find the highest bidder if she's getting saved by the government?<BR/><BR/>(btw: i will be out of internet connection for 7 days starting tomorrow)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-27697009.post-1155135032283778062006-08-09T07:50:00.000-07:002006-08-09T07:50:00.000-07:00I had completely forgotten about that option. Rai...I had completely forgotten about that option. Raising the reserve requirements would be a good one. Kind of a choke and die approach. I think I'd save that move for April Fools day if I were Bernenke-spanJim in San Marcoshttps://www.blogger.com/profile/09435296419912935381noreply@blogger.comtag:blogger.com,1999:blog-27697009.post-1155076163659040262006-08-08T15:29:00.000-07:002006-08-08T15:29:00.000-07:00Agreed,However... and you knew I was going to say ...Agreed,<BR/><BR/>However... and you knew I was going to say that, right?<BR/><BR/>The FED has a lot more power using reserve requirements than with interest rates. At this point, interest rates are just window dressing. When reserve requirements for bad debt losses rise, then we'll see a return to sanity with lending. Not before then. Because, as you said, they are pushing on a string. In the meantime, a lot of banks are overleveraged with MBS garbage and reserves are not set high enough to account for funny-munny loans in a deflationary environment. Once that happens, all hell breaks loose (as if it already hasn't?)<BR/><BR/>John DoeChuck Ponzihttps://www.blogger.com/profile/02563190232678709911noreply@blogger.com