Monday, April 6, 2009

Confidence is King

I trust all had a great weekend. Yesterday was very nice, warm around 60 degrees and Sun but today was a torrential downpour all day. Wild springtime weather swings.

William Black Interview
If you have not already come across this PBS Bill Moyer interview of William Black, then you may want to take a look. Pretty sharp commentary but hard to argue with any of the facts Mr. Black uses. Why on earth people with real insight and vision never happen to have any input on policy is beyond me.

The Government Hates Competition
After years of turning a blind eye to blatant mortgage fraud, the US government would like everyone to know that they simply will not tolerate and scams that take advantage of struggling home mortgage holders. The government would like to corner the market on strapping home mortgage holders to new longer term loans that can may be paid back to the banks:
Multi-Agency Crackdown on Foreclosure Rescue Scams Unveiled
Treasury secretary Timothy Geithner, along with other agency leaders, announced Monday morning in a press conference a multi-agency crackdown on bad actors in foreclosure scams.
The new effort aligns responses from federal law enforcement agencies, state investigators and prosecutors, civil enforcement authorities, and the private sector to protect homeowners seeking assistance under the Administration’s Making Home Affordable program from criminal actors looking to perpetrate predatory schemes.
Through FinCEN, the Treasury will also issue an advisory alerting financial institutions to the risks of emerging schemes related to loan modifications. The advisory will identify certain “red flags” that may indicate a loan modification or foreclosure rescue scam and warrant the filing of a SAR by a financial institution.
“The Department of Justice’s message is simple: if you discriminate against borrowers or prey on vulnerable homeowners with fraudulent mortgage schemes, we will find you, and we will punish you,” said U.S. Attorney General Eric Holder.
And with the collaborative efforts of the U.S. Department of the Treasury, the U.S. Department of Justice, the Department of Housing and Urban Development and the Federal Trade Commission (FTC), Attorney General Lisa Madigan said it’s no longer a matter of if those perpetrators will be caught, but when they will be caught.

Now do not get me wrong; I think having protections in place concerning these types of scams is a good thing. I was just wondering the following:

- How is it possible to put together an aggressive enforcement policy against foreclosure relief scams complete with aggressive language and a press conference and yet no program was ever put in place to stop liar loans and other mortgage fraud?

Just pop in a tape of the various home buying shows on TLC and you would have had all the fraud proof you would ever need. The government does not want prospective debt slaves that could be wed to new mortgages scared off by dishonest scams. The only scam in town that will be tolerated is the official one.

Confidence is King
The markets had a little bit of a pull back today, but the huge run over the past 2 weeks is still intact. With what Minyanville likes to term "Turnaround Tuesday" set up tomorrow I fully expect another nice run up.

Reading through tons of articles and listening to various commentary I was struck by the mechanics of the current stock rally. The impetus behind the move up can be boiled down to this:

- The Government has gone on the offensive to foster one thing: Confidence. While fundamentals and structural issues are still getting worse, there is a deep fear that all that could be ignored for a while if everyone collectively pretends it does not exist.

That is the core of the market rally. Market participants know the details that matter; unemployment is going to get worse, earnings are going to be awful, foreclosures are going higher (Fannie and Freddie moratoriums end this month), and the banks are no better off now than they were 4 months ago. These items ar clear and well known.

What is happening is that market players do not want to miss out on any gains a suspension of disbelief can deliver. It is already being widely discussed that earnings announced for the current quarter will be ignored as "in the past". The mark to market relaxation has many wondering just how creative bank earnings are going to be. Small upticks in good orders and consumer confidence levels are being blown out of any proportion.

It seems strange to watch adults in the financial industry allow themselves to be used in such a way. There seems to be some consensus that as long as everyone behaves the same, the rally can go on.

Optimism and confidence are the primary drivers of market action right now. Everything else in secondary. This can persist for longer than one might expect. All it is going to take is one blink or one ship jumper and the whole thing is likely to come down.

Glad we have such stable markets!

Have a good night.

6 comments:

GawainsGhost said...

Is this system stable?

I'm going to try this, and if it doesn't work, well, hopefully Watchtower can fix it for me.

The Geithner plan is one giant debt star.

http://rortybomb.wordpress.com/2009/04/05/banks-as-bidders-and-sellers-financial-nostalgia/

This guy shows how the entire system can be gamed, a la Enron.

Anonymous said...

http://tinyurl.com/c44zap

The future.

Kevin

GawainsGhost said...

Hmmm. It seems a movement is growing. Via Yves Smith at Naked Capitalism.

http://www.anewwayforward.org/demonstrations/

watchtower said...

Crap, my ISP went TU and I have to find a new one.
If I don't post for awhile you will know why.

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