Crazy Times Remind Me of…
There’s a common and disturbing thread behind these volatile economic times and its akin to inside investing.
A little background… back in July, I stroked a post insinuating that Fannie Mae and Freddie Mac’s falling stock prices were the result of the Financial Accounting Standards Board (FASB) implementing an accounting standard that required mortgage loans to be viewed and have their financial viability reported in a far more transparent manner, including the GSEs (Fannie and Freddie). Whoopsy…liquid to insolvent overnight.
Two months later they melted into a government receivership, in other words the government bought Fannie and Freddie and shored them up with Treasury money.
Reading between the lines…
…Fannie and Freddie have always been staunch Washington beltway lobbyist and political campaign contributors…so they were not about to be left high and dry.
But what about mortgages not originated by the GSEs and held by other financial institutions?
All you have to do is open Pandora’s box once. The new transparent accounting standards infected most every financial institutions portfolio, as they contained vast, newly ‘toxic’ tranches of Mortgage Backed Securities. They began to fall one by one in well publicized fashion. I suggested this all seemed a little contrived, but it was purely speculation at the time.
Why the Bailout Came To Be
Well, the Treasury Department can’t buy everyone, and so The Bailout was crafted…a couple of times. I’m the first to admit to having no clue as to what it initially meant for Wall Street or Main Street, except that something had to be done in attempt to restore confidence in the Market, and $700B seemed like enough raw hard cash to shore things up for a bit. I could make that type of coin go a long way and it would give me new found confidence 🙂
Well, clues have begun to manifest. Still not sure if it was Mr. Green(span) in the kitchen with the pipe but, reading between the lines…I have a few (rhetorical) questions, while reading between the lines:
- Why doesn’t the Bailout provide money to banks to lend instead of buying up the toxic assets (similar to Europe’s ‘bailout’ plan)? They rode it all up, why shouldn’t they ride it down?
- Why did the U.S. Chamber of Commerce spend $30M in lobbying in the 3rd quarter this year, twice the amount spent in the 2nd quarter? Did you know AIG (yes that AIG which spends $400k on corporate retreats) contributes heavily to the Chamber?
- Did you know that Goldman Sachs was the largest corporate contributor to political campaigns this past quarter? The same Goldman Sachs that has many ‘former’ executives heading up the Treasury’s Bailout Plan?
- How about JP Morgan and Citigroup, the latter of which absorbed Chase, each contributing over $4M to political campaigns. Yes that JP and Citi, who also received handsome federal aid checks.
- If these company’s can buy their way into huge chunks of tax payer fueled cash for relatively little ‘investment’, how in the world can the markets ever hope to restore any semblance of consumer confidence??
Black Monday Casually Passed
On September 15th, 2008 the Dow Jones Industrial Average dropped 504 points, which was pretty shocking. Looking back it turned out to be ‘Just Another Black Monday’. Since then the Dow has had 5 of the top 10 single day largest point drops in history. Conversely, the Dow has had 5 of the top 10 single largest point gains since 9/15/08. Granted, a lot of money has left the market but its mainly Main Streets money that’s gone…under peoples mattresses or into ‘safer’ securities like Treasury bonds.
Reading between the lines, the people that truly run our economy are special interest, political backslapping, welfare check inducing, greedy, smarmy a-holes who really don’t care about you (or me). There is no real logic behind all this economic mumbo-jumbo, well there is, its called ‘hedge fund redemptions‘ but that’s another topic for another day. It’s just a big game that only a few party insiders are allowed to play in anyway…mainly those who contribute to the political campaigns who the bail them out when they’re out of money.
Quick logic test (and reading between lines):
If some people make money when the market goes up and some people make money when the market goes down…and the market is going up A LOT and falling back down A LOT…then some people are making A LOT of money.
I’m purposely not stating which political group received contribution from whom on purpose because it really doesn’t matter. What does matter is that there is a relatively small group of people making a BOAT load of money right now, and its not anyone from Main Street.
I hope they hurry the hell up so the rest of this country (and greater Earth) can get back to doing business with some confidence.
The Next American President
Finally, reading between the lines, whoever is elected President is going to inherit an economy on the rebound and will look like a genius. I guess he paid for it.
**This week’s sign that the economic markets are scraping bottom:
California’s median home price dropped 34% from $430,000 to $283,000 compared to this time last year…as a result, sales are up 65%. As California housing economics approach the other 49 states, you know we’re bottoming out.
Reading between the lines, its a great time to buy!
October 30, 2008 at 4:05 pm
Jeff, same thing here in Ann Arbor, prices are down, home sales up.
October 31, 2008 at 8:41 pm
Things are looking up in Las Vegas also.
November 1, 2008 at 11:54 am
I’m not ready to throw a party about California’s ‘sales are up’ news just yet. Most of that movement is in the low price points and in the most distressed sectors of the market.
65% of the active inventory of homes in Rancho Santa Margarita under $500,000 are short sales. In Mission Viejo, 50% of the active inventory under $500,000 are short sales.
I just wrote about this issue on my blog a couple days ago. Solving the short sale crisis is the help ‘Main Street’ needs. We need efficiency – yesterday.
The negotiator with the bank on one of my short sale listings will only commit to a 4 to 6 month response time – and they’ve already approved the hardship. Our first 4 buyers at full price walked over the course of the last 4 months waiting for a response. She says the file starts all over with a new buyer! There is no excuse for this kind of inefficiency. The value on my short sale I mentioned has fallen at least $50,000 since the initial offer.
Until we solve this facet of the market, inventory is misrepresented higher than it should be, buyers stand by waiting to hear (pent up demand), property condition deteriorates, and values continue to decline.
Solve the short sale market and we’ll have a good head start to a recovery. Until then…I’m not sure about the benefits of this great bailout.
November 19, 2008 at 8:51 am
Once upon a time my checking account was overdrawn because some fool stopped payment on a check. Then this fool didn’t bother to check his balance before paying bills. Cost to me – $489.00 in the red. I did moan and cry for the bank to bail me out. Fat chance.
Cost to me. $210+
Now my bank has screwed up. They cried for the government to bail them out. Voila – they are bailed out.
Cost to the bank – nada.
One other thought. Shouldn’t a bank be smarter about finances than I was?