Friday, May 16, 2008

Banks Taking Advantage of the FED and ECB? NO WAY!

Rain today and cool temperatures expected for the next 7-10 days. This month is not shaping up well. The opening of my fishing season will be pushed back if the temps do not improve soon. Oh well.
Happy Anniversary for loyal reader G this weekend!

Fannie Mae Setting Up the Taxpayer for a Big Time Payout
So as we all know easy money and extremely lax lending standards (if any) were the main enablers of the housing boom, now bust. No down payment, no income verification loans were all the rage and those loans sport the highest default numbers. Fannie Mae (FNM) had some of the more stringent lending rules, and had recently in December instituted a rule that required a 5% down payment for a loan in troubled markets. 5% down. Not 10%. Just 5%.

Well of course nobody has that kind of actual hard cash money, so the NAR and other housing pushers were screaming murder over the rule. Alas, here we are in May and FNM has made a move:
Fannie Mae scraps higher down-payment requirements
Friday May 16, 6:03 pm ET By Alan Zibel, AP Business Writer
Fannie Mae scraps increased minimum down-payment requirement for homes in flagging markets
WASHINGTON (AP) -- By relaxing down-payment requirements for borrowers in markets where home prices are falling, Fannie Mae aims to both resuscitate the flagging housing market and respond to pressure from industry groups, consumer advocates and lawmakers.
It's a balancing act that critics and investors worry exposes the company to more risk, as foreclosure rates spike and home prices keep falling.
Washington-based Fannie Mae said Friday it will require minimum down payments of 3 percent for loans made through its computerized underwriting system.
The new policy, effective June 1, replaces a December one that required a 5 percent down payment for home loans in areas with declining real estate prices. Fannie Mae predicts U.S. home prices will drop 7 percent to 9 percent on average this year.

I have said time and again that the only way to restart the housing boom is to lend like mad to anyone. Any, and I mean any, qualifying conditions will preclude 80% of prospective buyers right off the bat. Here is a prediction; by September the same people clamoring for the reduction from 5% to 3% will be screaming for no money down to be put in place. Guaranteed.

The last sentence really shows you how out of touch the markets, lawmakers, and the media are in this area. 3% down payment, on a home that will decline in value this year by 7-9% at least, means the new buyers are instantly underwater! Great idea! It is very good for us all that we have smart folks that can handle these issues for us. The stock was flat on the day even as the company itself admits it is going to make bad loans. Love it.

Banks Taking Advantage of the FED and ECB? NO WAY!
The Financial Times had a piece today that covered growing suspicion by the ECB that member banks in Europe may be, now prepare yourself, packaging toxic waste paper and stashing it at the central bank in exchange for ECB equivalent treasury bonds. You don't say?
Full story:

A while back I had a post about how the FED has no idea what kind of animals they are getting into bed with as they open their balance sheet to the banks, and investment banks in particular. While the ECB seems to have found a clue, the FED is in an even worse spot as I am sure our side of the Atlantic banks are being very aggressive with their swaps. Again, easy to see beforehand. Perhaps Bernanke will give a speech in a month where he calls on those fictitious "supervisors" to keep this kind of action from happening. Sweet stuff!

Is Borrowed Money Saved Money?
Remember the guy that emailed a CNN money show with this awesome question:

'Mark has a question. He asks, "I recently saved up about $20,000." That's good news. "Unfortunately, I have a little over $14,000 in credit card and medical debt. Eight of the accounts are in collections. Three are supposed to fall off my credit report by January 2009. Should I take my savings and pay off the collection accounts or continue to keep it in a savings account?"'

Not to be outdone, The Governantor of California would like to sell a bunch of bonds backed by the state lottery (that sure sounds good) which will provide 5 Billion dollars to close the budget gap, and 10 Billion for a reserve account. Borrowing money to have saved money? I think Mr. Schwarzenegger needs to get a lesson in finance. This is not Mars in "Total Recall" you know?

It is Friday, so you know what time it is, Yes?

Obligatory funny picture:

more cat pictures

OK, now its time;
To Bring forth the rhythym and the rhyme! (Thanks Marky Mark!)

Rock Blogging!
One reader (Big Dawg) requested some classic 80's rock, which I happen to love anyways! No specification for hair bands, metal bands, or other so I guess it is up to me.

One of may favorite 80's bands was Skid Row. Take a listen to "18 and Life":

The Van Halen tune "Everybody Wants Some" as seen in the classic film "Better Off Dead":

With the new hit fim "Iron Man" in theaters, I have to remind people that "Iron Man" was also a classic Black Sabbath song, one of the best ever in fact!:

Found the old video for Iron Maiden's "The Trooper". I remember when I had to stay up until after 12 midnight to see "Headbangers Ball" on MTV which was the only time thay played hard metal!:

Have a good night.


Anonymous said...


It may just be me but I think everyone knows Fanny and her fat little brother Freddie are toast and the taxpayers are on the hook for this anyway. This is one more step closer to nationalizing home loans. Which industry will be next? Hummmmmmmm


getyourselfconnected said...

I agree but what really can we do? If there was a pillar of strength, a real leader, the military would be onboard with a real "change". The way things are is so lost, there is no real way to begin change, only overhaul. It really kills me to say that, I wish there were another way.

Big Dawg said...

Fanny and Freddie are the only tools left in the tool box for keeping the wheels on the real-estate bubble cart. Nothing else the Fed has done has worked. The only thing the Fed has done is sink the dollar and driven up inflation by funding all of this lunacy with money made out of thin air. Some day our “friends” over seas will stop buying all of our garbage debt and then we will really be in trouble.

Nice choice with Iron Maiden. Got to love 80s metal.


Krista said...

Great work.