Total ice bowl up here today. I could not open my trunk because of the layer of ice encrusting my car. Roads were a bit tricky today as well. Luckily, the Infiniti G35x that I drive has a handy "SNOW" button that engages the All Wheel Drive System, so the car was very sure footed. I will never drive a front wheel drive car again.
FED Auction Results: Have to Wait Until Wednesday
The first (of many?) FED auctions of a whopping 20 billion dollars was held today. The results of which will be known on Wednesday. Seeing that the whole point of this exercise was to allow banks to use bogus assets as collateral to very quietly receive "liquidity", the only information that I think will be given out is that the entire 20 billion was lent out. As they say on Minyanville, it is not the news, but the reaction to the news and today the market was down a bit. With all the bellyaching about the auction and lingering whining about the 25bps point cut from last week, I wonder if the market is making too much noise. Friday is one of those "quadruple witching" options expiration days, and maybe Mr Market thinks all the crying will get him a inter meeting rate cut Thursday afternoon? We shall see.
Like a Poor Marksman, You Keep Missing the Target
"You’ve managed to kill everyone else but like a poor marksman, you keep missing the target"-Admiral James Kirk of the USS Enterprise to Khan in Star Trek II The Wrath of Khan
Last night I made the observation that Alan Greenspan was both clueless and insane. He held the title of "Missing the Point Man of the Year" for a short 20 hours. The Title has now been taken over by our very own Treasury Secretary Hanky Panky Paulson. From Bloomberg today:
Paulson Favors Fannie, Freddie Buying Jumbo Mortgages (Update2)
By Kathleen Hays and John Brinsley
Dec. 17 (Bloomberg) -- Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac, the largest sources of finance for American mortgages, may help ``jump start'' the market for the largest home loans.
Paulson said in an interview today that he favors temporarily allowing the two companies to purchase so-called jumbo loans, which exceed $417,000. He said the proposal should be part of a package of legislative changes governing the two government chartered companies.
The Treasury chief spoke during a tour of three states to discuss the Bush administration's efforts to ease the subprime mortgage crisis. Paulson has come under fire from Democrats in Congress for not acting quickly enough to help Americans at risk of defaulting after home prices slid and borrowing rates jumped.
``We would be for lifting the limits for Freddie and Fannie on a temporary basis,'' Paulson said in Orlando, Florida. ``As I talked to members of Congress, I am hearing less and less resistance to reforming the GSEs.
We're getting very little pushback on this right now because I think given what's happened, everybody understands how important it is,'' Paulson said.
Forget that any "temporary" measure must become permanent unless one wants a problem down the road when the caps are lowered again. Forget that Paulson views the congress' caving in on this idea as a good thing. Desperate measures are seldom good things. Instead focus on the opening paragraph where Hanky says raising the caps would JUMP START the market for the largest homes. It is here that Paulson shows zero understanding of the issue at hand.
The main problem facing the mortgage market right now is not a lack of pure liquidity per say, but a lack of liquidity that will never be paid back! This is the key problem and Paulson misses entirely like a poor marksman. Money can continue to be poured into the banks and poured into mortgages, but lending will not resume under the lax standards that brought this mess down. The ratings agencies will no longer rate crap as gold now that they are being severely pressured. Outside investors are only just now beginning to see how much money they have lost through pension plans, union plans, etc and they are going to avoid toxic mortgage paper for the next 10 years. There is no pent up demand waiting for mortgage cash. There is no backlog of good borrowers that need a mortgage. The only way for any "liquidity injection" plan to work is if the lending standards return to the Bubble standards. I probably should not have written that as Paulson's new plan tomorrow will probably include new lending standards mandated by the Treasury!
The game is up. Investors, creditors, and bagholders are now seeing that they will not be paid back. Raising the caps of Fannie and Freddie will accomplish nothing for the housing market. Paulson MUST know this. So why propose and push for it at all? Sadly I think it is mostly about politics and perception than any real attempt to change things. This is your America folks, it's time for some kind of wholesale changes of leadership.
Insurance is Wonderful, Unless You Need It
Calculated Risk has been collecting headlines concerning the problems in the Bond Insurance arena. I must admit that all the ratings games and alphabet soup of bonds is little hard to follow. I suggest checking in over there daily, especially Friday evenings when things tend to be announced. The take home point is that another shoe to drop in the housing bubble is going to be the insurance companies that have paltry cash on hand insuring MASSIVE amounts of bonds and derivatives that they can never pay the policy's on. Credit crunch and credit deflation are two terms you should come to know well. Check out tonight's post for more info:
Have a good night.