Wednesday, December 9, 2009

Pretend and Just Forget the Extend

Plenty of news out there. I thought the year end was supposed to be quiet? First real snow storm here today and it was so much fun shoveling and clearing the roof ledges.

People Ask Me Why I am Dizzy, and I tell Them It's Because I Cannot Stop Spinning Around
I love it when you get two items that are about the very same thing yet are polar opposites. Consider:
BofA Prices $460M CMBS Issue
HousingWire recounts BAC's sale of CMBS (only the years 2nd!) with no government support. At $460 million, not too bad. And it's in Florida which is amazing.

or try

Deal That Was Supposed To Mark Renaissance Of New York Commercial Real Estate Market Collapses
Zero Hedge covers the failure of a major New York Commercial deal.

So which way is up? Who really cares. I know CMBS cannot be good right now, I can see with my own eyes all the empty commercial property up here, but as it does not matter anymore to anyone so flip a coin.

More on the Jobs Numbers
Now that TARP will be redeployed (forever?) as a jobs program cash cow, try and remember how much all the incentive programs cost. Cash for Clunkers was a terrible waste, and the home buyer tax credit is another loser. Ilargi, of The Automatic Earth, pens this thought on the jobs spending thus far and going forward:
If we would look at more realistic job numbers, we see for example that the Economic Policy Institute puts the total number of under- and unemployed, marginally attached and involuntary part-time workers at 26.9 million. If we follow John Williams' SGS data, which include even more workers the government prefers not to count, we see that 22% of the non-institutionalized working-age population, some 33.9 million people, cannot find a job, or at least not a satisfactory one.

And, to take this one step further, if we assume that $700 billion of the original stimulus plan was intended for job creation, and the goal was 3.5 million jobs, we may also assume that it takes $200,000 to create one job. So in Obama's idea to use TARP funds for the purpose now, it would take $70 billion to make 350,000 jobs, and $150 billion to make 750,000. Creating satisfactory jobs for everybody on John Williams’ SGS list would cost $6.78 trillion.
I actually wish Ilargi had not thrown out that $6.8 Trillion number as I think Paul Krugman will argue that kind of spending is just what we need.

If You Lie Down with Dogs You Get Fleas as Well as Hair All Over Your Black Clothing
The very first question Ben Bernanke, Tim Geithner, or any official that matters should be made to answer in no uncertain terms is why the same kind of reckless lending and speculative behavior is happening again while they watch. What do I mean? Housing Doom has the goods:
Flippers Going Wild Again
Check it out.

More on Mortgage Rate Suppression
An anonymous commenter noted that Calculated Risk had another item up tonight about mortgage rates. CR adjusts his position slightly here:
Expected Mortgage Rates
CR moves from a firm "minor" effect of 30-35bps to a target range of 30-50 bps as of now.

I covered this in detail here.

My own call is for a move up in the 100-200bps range minimum. This assumes of course that the FED actually stops buying MBS in the spring. This also assumes the MBS suppliers/buyers really take such a stop seriously. They may well know that any trouble will be supported by renewed FED MBS buying so the move up may not materialize. I meant in a real world scenario, which clearly we are not in.

Pretend and Just Forget the Extend
While almost everything I covered so far can appear under this banner, I split things up because I like to do that.

I will now present the easiest financial call of all time:
Administration extends $700B bailout until Oct.
TARP will never die! Available money has a way of staying available in Washington, so this should be no surprise.

Just as a quick recap, here is the Wiki entry for TARP and it's initial mandate:
TARP allows the United States Department of the Treasury to purchase or insure up to $700 billion of "troubled" assets. "Troubled assets" are defined as "(A) 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 March 14, 2008, the purchase of which the Secretary determines promotes financial market stability; and (B) any other financial instrument that the Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."[1]

In short, this allows the Treasury to purchase illiquid, difficult-to-value assets from banks and other financial institutions. The targeted assets can be collateralized debt obligations, which were sold in a booming market until 2007 when they were hit by widespread foreclosures on the underlying loans. TARP is intended to improve the liquidity of these assets by purchasing them using secondary market mechanisms, thus allowing participating institutions to stabilize their balance sheets and avoid further losses.


Of course TARP became an AIG crutch, an automaker bailout fund, and well whatever else anyone felt like. Here is the free roll:
On December 19, 2008, President Bush used his executive authority to declare that TARP funds may be spent on any program he personally deems necessary to avert the financial crisis. This has allowed President Bush to extend the use of TARP funds to support the auto industry, a move supported by the United Auto Workers.
And by "He" i really do not think the president had much input on what or how TARP would be used. He was too dumb for that, remember?

Just like in The Usual Suspects, we need an all star line up for the best of pretend. In no particular order:
-Pretend banks are solvent
-Pretend home prices do not need to fall another 30% (in most areas) to become affordable
-Pretend jobs are not really needed in this new economy
-Pretend you can create said unneeded jobs anyway
-Pretend support will be withdrawn "in a timely manner" so that you can...
-..Pretend the US is not behaving like a third world banana republic as it relates to spending
-Pretend commercial real estate is no big deal
-Pretend that Dubai is no big deal
-Pretend that Greece/Spain/Ukraine are just like Iceland; not meaningful
-Pretend California is meeting budgets without US Federal support via "other" mechanisms

I could go on, and you should add to this in the comments.

Have a good night.

9 comments:

getyourselfconnected said...

All,
any ideas on what this light was over Norway is appreciated:
http://tinyurl.com/y8ctp7g

watchtower said...

"any ideas on what this light was over Norway is appreciated"

It's obviously a Millenium Falcon going into hyperdrive.
That's the kind of corkscrew effect you get with Earth's atmosphere.

watchtower said...

I don't remember exactly when it was that KD left a comment but I do remember what it was about.
I had made a remark about something KD had said about gold on your comment section and I would guess that someone over at his forum site had seen it and told him about it (I'm guessing).
Next thing you know KD is over here at Economic Disconnect taking me to task (like I even know what the hell I'm talking about anyway) and telling me that if a person was so sure gold was heading up then he should short the dollar (I'm paraphrasing here because I don't remember exactly what he wrote).
After this I explained to him that I was buying PMs as a hedge against a full on currency collapse, not to make a 'day trader' type profit off of it.

getyourselfconnected said...

Watchtower,
I kind of remember, I will have to search for it.

Millenium Falcon can only jump to hyperspace while out of a planets gravity well, for what its worth. HA

Dave in Denver said...

hey GYC, re: your comment on my post today about something "not feeling right."

What's not right is that real economy continues to disintegrate all around while "they" - "they" being the Orwellian media and political leaders - keep insisting that things are getting better.

I heard several real life horror stories tonight about people I know - and know of - who are financially dying on a vine. Granted most of them were overleveraged from the salad days of the last 10 years. But they all have solid middle income jobs and many are in jobs that will be safe until the very end.

I'm going to try and put together a blog post on this, but as an example, my significant other (female, just for the record LOL), is a high school teacher and she just today heard about several teachers who are now taking weekly advances on their paycheck mid-week from those Fast Cash places. In fact, she was told via someone who works at a fast cash place that some teachers were coming in and taking advances against their retirement plans. Same with non-teachers getting 401k advances.

So what's wrong is that our system is collapsing and we have shitbird in the White House enabling the big bankers to loot everything before it collapses.

That's what's wrong...

getyourselfconnected said...

Dave,
wow, spot on as usual. Those fast cah scams are like 200% interest or something!

I have been struggling to "put it all togther" but I think you hit some key points.

Just have a bad feeling. Or maybe its just the Patriots!

Talia said...

"The very first question Ben Bernanke, Tim Geithner, or any official that matters should be made to answer in no uncertain terms is why the same kind of reckless lending and speculative behavior is happening again while they watch."

Well what do you expect to have happen. People sit on the sidlines forever- so risk averse to where the refuse to move in til prices hit $0???

From the story itself:

"Now, a different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves."

Ding ding ding. Just like the bottom of each and every downturn from the beginning of time, this is what you are supposed to see - bottom feeders coming in with CASH hoping to step into the breach and make a buck. If they judge correctly, they profit handsomely. If they go in to soon, they crash and burn losing THEIR OWN MONEY!!!

I have no idea if this is the bottom or not, but you should not in any way be discouraged or disgusted by this behavior. Even if this is not the bottom, lower prices will force them in with an even greater vengeance.

Bottom line - thank god for bottom feeders. Without them, no bottom would ever be found.

getyourselfconnected said...

Talia,
I will post a response to your very good points tonight.

All,
the crazy light show in Norway was a malfuntioning Russian sub launched missile. Crazy.

Anonymous said...

Opulently I agree but I dream the post should secure more info then it has.