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The housing market is bad.  And it’s getting worse.  A report on CNN today says:

Hammered by the ailing housing market, mortgage finance giant Fannie Mae said Thursday it would tap its lifeline from the Treasury Department after reporting $58.7 billion in losses for 2008.

The company, a crucial source of funding for mortgage lenders, said it would draw down $15.2 billion of its $200 billion federal line of credit. In return, the government will receive preferred shares.

And it gave a dour view of the housing market — saying it expects peak-to-trough price declines to be in the 33% to 46% range, up from the 27% to 32% range it gave in the previous quarter. For 2009, it predicts home values will drop 12 to 18%.

For the fourth quarter, Fannie Mae reported $25.2 billion in losses, or $4.47 per share. The results mark the sixth straight quarter of losses, though slightly narrower than it reported in the third quarter. A year ago, Fannie Mae reported $3.6 billion in losses.

The company, which was taken over by the government in September along with Freddie Mac, attributed the losses to soaring defaults. Its provision for credit losses plus foreclosed property expense came to $12 billion for the quarter, up 30% from the previous quarter. Its charge-offs, or loans written off as uncollectable, rose 219% to $7 billion in 2008.

So as bad as the housing market has been, Fannie Mae expects it to get worse.  Prices are expected to drop another 12% to 18% this year.  And we (the US taxpayers) are on the hook for another $15 billion in bailout money.

Why not let Fannie go broke?  Investors in Fannie Mae would be screwed, but it’s better than soaking all of us who didn’t give them money willingly.  Instead. we’re now all investors in Fannie – whether we think it’s a good investment or not.

Socialism sucks.

gk

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I read today where the President launched a new website to allow us to track where the “Recovery Act” money is going.  It’s at Recovery.gov.  On the website, President Obama says This is your money. You have a right to know where it’s going and how it’s being spent. Learn what steps we’re taking to ensure you can track our progress every step of the way.

There are also links on the site to “Contact Us” and “Share your Recovery Story“.  So I did.

Rather than simply send my comments to a website form that no one will ever read or respond to, I decided to send my comments to the site, but to also copy them here so people could see them.  Unlike comments here, comments to recovery.gov seem to disappear.  They don’t show up on the website, and you don’t even receive an email form letter saying “thank you for contacting us” or some other nonsensical crap that makes you feel like they saw your comment.

So I decided to copy my comments here for all to see.  Feel free to add your comments, both at recovery.gov and here.  I’ve decided to put my comments  in an “open letter” format.  So here goes!

An open letter to President Obama;

February 18th, 2009

Mr. President,

I left the following comment on your “contact us” form.

While it’s great to show a big picture view of where the money is going, I’d like more detail.

Which companies are getting the money for “Science and Infrastructure Relief”, just what is “Protecting the Vulnerable” and who is getting that $81 billion?

What is “State and Local Fiscal Relief” – which state and local governments are getting the money and how much?  Who decided how this $144 billion will be spent?  What projects is it being spent on?

I have dozens of other questions, and I doubt I can list them all, but in general, I want to know who is receiving every dime of my money.

Since I was responsible with my finances, I know it won’t be me, but I have a right to know if my tax dollars went to my neighbor to renegotiate and pay down his house.

Fess up, detail it, tell me which companies and individuals got my money.  That’s transparency – lets see if you keep your promise.

Since you also have a “Share your Recovery Story” section where you ask me to “Tell us how the Recovery Act is affecting you.”, I also took advantage of your offer to listen and posted how your stimulus bill is affecting me.  Here’s what I sent to you on that form:

How is the “Recovery Act” affecting me?  From what I can tell, the effect on me is that I now owe $5702.90 more than I did before this act was passed.  That’s $787 billion divided by 138 million (as of 2007) taxpayers.

That’s my share of what Congress and President Obama just spent.  That’s ridiculous.

It’s ridiculous because I lived within my means, didn’t buy a house that I couldn’t afford, and now I have to fork over my money to pay for people who couldn’t do basic math when they borrowed money.

They borrowed on credit cards, cars, consumer electronics and most of all houses.  They made $50K per year and somehow thought they could afford a $400K house.  With no money down.  On an “Option ARM”, or “Pik-A-Pay” mortgage.  And because they can’t add, I’m now paying part of their mortgage.

That’s how the “Recovery Act” is affecting me Mr. President.  And you can quote me on that.

Thank you for asking for my input Mr. President.  I hope that by reading it you have gained a deeper understanding on how your $787 billion spending plan is affecting me and the vast majority of Americans who are able to add and subtract.

gk

P.S.  You may quote these messages in any communication you like.  I don’t insist on attribution, please use the information however it best assists you in bailing out badly managed banks and companies.  Don’t forget the individuals who bought more house than they could afford using exotic mortgages.

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The Senate tonight passed the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″.   Why should you care?  Because it’s the single largest, most intrusive, most budget busting bill ever passed.

In case you’re wondering, the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″ is the name of the Senate version of the bail out bill.   I’m serious.  And I’m serious about kicking both of my Senators (Corker and Alexander) out.  On their asses.  Hard.  Because both of their asses voted for this monstrosity.

The bill passed 74 to 25.  You can see how your Senators voted here.

Take a minute and read some of the highlights of what’s in the bill.  Here are a few quotes.  Let me know when you figure out what the hell this has to do with the “Paul Wellstone Mental Health and Addiction Equity Act of 2007″ – or how these items will somehow make the bill more palatable to House Republicans.

The package adds provisions to the House version – including temporarily raising the FDIC insurance cap to $250,000 from $100,000. It says the FDIC may not charge member banks more to cover the increase in coverage.

The bill allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit (This is the dumbest thing I’ve ever heard – prohibit the FDIC from raising insurance rates – while allowing them to “cover any losses” (yes, it’s UNLIMITED) by borrowing from us.  STUPID!)

Here are some other financial bail out items included in the bill that I’m sure Corker and Alexander think we needed….

a deduction for the purchase of solar panels….

allow individuals to deduct state and local sales taxes on their federal returns….

relief for another year from the Alternative Minimum Tax….

Here’s the kicker – and I quote “The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill.”

The dumbass Senators who voted for this bill didn’t have a fucking clue as to what they were voting on – because “of the many unknowns” contained in the bill!

PLEASE – Call and write your Representatives.  Now.  I mean right now, not tomorrow morning, don’t wait, DO IT NOW.  This financial nightmare that’s being ramrodded down our throats can still be stopped if enough people express outrage.  If the House doesn’t pass it – it won’t become law.  It’s that simple.

God help us (and our kids) if this gigantic takeover of the private sector goes through.  I’m only 46 and there’s no way to pay for it in my lifetime – it’s borrowed from my kids and their kids.  STOP THE MADNESS NOW!

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Someone must have screwed up, because when Bush made his speech the other night, he actually got part of it right.  In the past 7 years, you can probably count on one hand the number of times that has happened.  It’s probably lower than mere chance would allow!

I’ve said it before, but it bears repeating – GWB is the worst president in my lifetime – perhaps ever.  I’m 46, so that includes such fuck ups as LBJ, Nixon (who actually bears the brunt of the blame for removing us from a semi-gold standard which led to the financial mess of today) Ford, Carter (I didn’t think anyone could ever top Carter in incompetence!), and Bush I.

The Daily Show had a great segment last night comparing the speech Bush made before the start of the Iraq invasion to the one he gave Wednesday night.  Pretty hilarious!  Terms like “crisis”, “immediate action”, “urgent”, etc, were used in almost the exact same context in 2003 as they were in 2008 – and both were mostly lies.

Anyhoo – here’s the part that Bush got right.  I’ll highlight a few things that I feel are especially pertinent to this “crisis”.

Here’s part of Bush’s speech as transcribed on Whitehouse.gov:

First, how did our economy reach this point?

Well, most economists agree that the problems we are witnessing today developed over a long period of time. For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions — along with low interest rates — made it easier for Americans to get credit. These developments allowed more families to borrow money for cars and homes and college tuition — some for the first time. They allowed more entrepreneurs to get loans to start new businesses and create jobs.

Unfortunately, there were also some serious negative consequences, particularly in the housing market. Easy credit — combined with the faulty assumption that home values would continue to rise — led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

Optimism about housing values also led to a boom in home construction. Eventually the number of new houses exceeded the number of people willing to buy them. And with supply exceeding demand, housing prices fell. And this created a problem: Borrowers with adjustable rate mortgages who had been planning to sell or refinance their homes at a higher price were stuck with homes worth less than expected — along with mortgage payments they could not afford. As a result, many mortgage holders began to default.

These widespread defaults had effects far beyond the housing market. See, in today’s mortgage industry, home loans are often packaged together, and converted into financial products called “mortgage-backed securities.” These securities were sold to investors around the world. Many investors assumed these securities were trustworthy, and asked few questions about their actual value. Two of the leading purchasers of mortgage-backed securities were Fannie Mae and Freddie Mac. Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.

There’s not much disagreement anyone should have with that.  One point that I want to make sure everyone understands is what started this process – the Feds lowered interest rates too far, and kept them artificially low for waaaay to long.  Individuals and institutions basically had free money to play with – and they played.

I’m in the IT business, and when we have a problem, we conduct a “root cause analysis” which examines the real cause of the problem, then we use that info to figure out how to prevent the problem from happening again – ever.

So, root cause for this “crisis” is the Federal Reserve interest rate policy from about 2002 through 2005.  Still with me?  Good.

So, what enabled the problem to continue until it reached “crisis” proportions?   Fannie and Freddie – the Government Sponsored Enterprises (GSE’s) – bought up the bad debt from the companies who originated the bad loans – enabling them to originate more bad loans because they didn’t have to worry about being paid back.

Fannie and Freddie had already paid them, so they had money to lend to make more bad loans…. Which they sold to Fannie and Freddie which enabled them to make more bad loans….  Which they sold to – I hope you get this, because I don’t want to say it again!

Ok, still with me?

There’s one last key part that needs to be mentioned.  The part where Bush said “many believed they were guaranteed by the federal government”. This is key because investors (including many foreign governments, hedge funds, and state pension funds) bought the mortgage backed securities from Fannie and Freddie specifically because they had an implicit guarantee from the federal government – after all, what does “Government Sponsored Enterprise” mean?

So what’s the key ingredient in all of these key points?  The government.  The federal government created this mess, the federal government kept it going and growing long after normal market forces would’ve caused it to slow down or stop, and the federal government got gullible investors to buy up the toxic crap, repackage it, and sell it to other (still more gullible) investors.

This same government is the one who now says they need $700 billion and a bunch of new regulations to clean up the mess.  And a bunch of people and gullible investors believe them!  Give me a break!

Here’s the gk plan – let the stupid assholes who spent more than they could afford, gave loans to people who couldn’t pay them back, and bought the loans from the people who originated them – let them all eat cake.

Let them go broke.  Wiped out.  Bankrupt, disappear, and otherwise vanish.  The are stupid and they should reap what they sowed.  Idiots!

But that’s not Bush’s plan.  His plan is to make all of us fork over our money to bail out these stupid people.  That’s a dumb plan.  I don’t care if it’s called a bail out or a rescue, it’s still a dumb plan

gk

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This needs to be read by more people, so more people can contact congress to let them know what they think of it.  I’ll post the reasons for my own thoughts later (I think it sucks!) but for now, here’s the text of the proposed plan according to the NY TImes.  Please read it and let congress know what you think!

gk

LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY

TO PURCHASE MORTGAGE-RELATED ASSETS

Section 1. Short Title.

This Act may be cited as ____________________.

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase.–The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions.–The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation:

(1) appointing such employees as may be required to carry out the authorities in this Act and defining their duties;

(2) entering into contracts, including contracts for services authorized by section 3109 of title 5, United States Code, without regard to any other provision of law regarding public contracts;

(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them;

(4) establishing vehicles that are authorized, subject to supervision by the Secretary, to purchase mortgage-related assets and issue obligations; and

(5) issuing such regulations and other guidance as may be necessary or appropriate to define terms or carry out the authorities of this Act.

Sec. 3. Considerations.

In exercising the authorities granted in this Act, the Secretary shall take into consideration means for–

(1) providing stability or preventing disruption to the financial markets or banking system; and

(2) protecting the taxpayer.

Sec. 4. Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

Sec. 5. Rights; Management; Sale of Mortgage-Related Assets.

(a) Exercise of Rights.–The Secretary may, at any time, exercise any rights received in connection with mortgage-related assets purchased under this Act.

(b) Management of Mortgage-Related Assets.–The Secretary shall have authority to manage mortgage-related assets purchased under this Act, including revenues and portfolio risks therefrom.

(c) Sale of Mortgage-Related Assets.–The Secretary may, at any time, upon terms and conditions and at prices determined by the Secretary, sell, or enter into securities loans, repurchase transactions or other financial transactions in regard to, any mortgage-related asset purchased under this Act.

(d) Application of Sunset to Mortgage-Related Assets.–The authority of the Secretary to hold any mortgage-related asset purchased under this Act before the termination date in section 9, or to purchase or fund the purchase of a mortgage-related asset under a commitment entered into before the termination date in section 9, is not subject to the provisions of section 9.

Sec. 6. Maximum Amount of Authorized Purchases.

The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time

Sec. 7. Funding.

For the purpose of the authorities granted in this Act, and for the costs of administering those authorities, the Secretary may use the proceeds of the sale of any securities issued under chapter 31 of title 31, United States Code, and the purposes for which securities may be issued under chapter 31 of title 31, United States Code, are extended to include actions authorized by this Act, including the payment of administrative expenses. Any funds expended for actions authorized by this Act, including the payment of administrative expenses, shall be deemed appropriated at the time of such expenditure.

Sec. 8. Review.

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Sec. 9. Termination of Authority.

The authorities under this Act, with the exception of authorities granted in sections 2(b)(5), 5 and 7, shall terminate two years from the date of enactment of this Act.

Sec. 10. Increase in Statutory Limit on the Public Debt.

Subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $11,315,000,000,000.

Sec. 11. Credit Reform.

The costs of purchases of mortgage-related assets made under section 2(a) of this Act shall be determined as provided under the Federal Credit Reform Act of 1990, as applicable.

Sec. 12. Definitions.

For purposes of this section, the following definitions shall apply:

(1) Mortgage-Related Assets.–The term “mortgage-related assets” means residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before September 17, 2008.

(2) Secretary.–The term “Secretary” means the Secretary of the Treasury.

(3) United States.–The term “United States” means the States, territories, and possessions of the United States and the District of Columbia.

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Just yesterday I mentioned the CNBC report about Ambac that caused a major market revesal a couple of weeks ago, and now it happens again today.  How many times are these people going to cry wolf?  And (perhaps a better question) when do people stop believing what CNBC says?

Perhaps the strangest part of today’s story is who they are counting on for the bailout….  Citigroup!  But the market was way down this morning partly because of a report that Citigroup needs a lot more money to stay afloat.  The report said:

Sameer Al Ansari, Chief Executive of Dubai International Capital told delegates at a private equity conference thatit will take more than the combined efforts of the Abu Dhabi Investment Authority, the Kuwait Investment Authority and Saudi investor Prince Alwaleed bin Talal to save the bank.

“It’s going to take more than that to rescue Citi,” Ansari said. He added that more write downs are expected and that Gulf investors would be required to bolster Citi.

Pardon my ignorance, but just how exactly is a financially troubled bank supposed to bail out anyone?  The answer of course is by borrowing money via the Fed’s Term Auction Facility (TAF) which doesn’t need to be disclosed. 

My take is that the longer we prop up this house of cards, the longer it will take to put it behind us – and the harder the crash when they do eventually fail.  We should let these businesses (and investors and borrowers) go under now.  It’ll be a terrible quarter or two, but it’ll be done with.  The way this is going, these financial problems are going to drag on for years,

gk

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