Wednesday, August 22, 2007

Bush must be back snorting coke

CNN was right on the money about Bush comaparing withdrawing from Iraq to withdrawing from Vietnam:

"Whatever your position in that debate, one unmistakable legacy of Vietnam is that the price of America's withdrawal was paid by millions of innocent citizens, whose agonies would add to our vocabulary new terms like 'boat people,' 're-education camps' and 'killing fields,' " the president said.

Unfortunately, this speech is not getting a lot of coverage. It's not even linked on the CNN front page right now. The comparison will backfire because the biggest commonality between Iraq and Vietnam is they are both un-winnable quagmires.

Bush forgot the millions of Vietnamese who died during the war. More would have died if the war continued. Claiming the Cambodian "Killing Fields" were a result of the US withdrawal from Vietnam is utterly false. It was the communist Vietnamses government who overthrew the Khmer Rouge:

By December 1978, because of several years of border conflict and the flood of refugees fleeing Cambodia, relations between Cambodia and Vietnam deteriorated. Pol Pot, fearing a Vietnamese attack, ordered a pre-emptive invasion of Vietnam. His Cambodian forces crossed the border and looted nearby villages. Despite American and Chinese aid, these Cambodian forces were repulsed by the Vietnamese. The Vietnamese forces then invaded Cambodia, capturing Phnom Penh on January 7, 1979. Despite a traditional Cambodian fear of Vietnamese domination, defecting Khmer Rouge activists assisted the Vietnamese, and, with Vietnam's approval, became the core of the new puppet government.

If the Congressional Democrats were such a bunch of spineless wimps, I'd be hopeful that Bush's politically stupid comparison would help hasten the end of the war.

Tuesday, August 21, 2007

Is Bush back snorting coke?

CNN says Bush will claim we should not withdraw from Iraq because it's withdrawing would be like withdrawing from Vietnam.

The president will also make the argument that withdrawing from Vietnam emboldened today's terrorists by compromising U.S. credibility, citing a quote from al Qaeda leader Osama bin Laden that the American people would rise against the Iraq war the same way they rose against the war in Vietnam, according to the excerpts.

"Here at home, some can argue our withdrawal from Vietnam carried no price to American credibility, but the terrorists see things differently," Bush will say.

I predict this argument will bomb with the American public. Comparing Iraq to Vietnam is a stupid political move. The reason we should leave Iraq is that it is an un-winnable quagmire like Vietnam. I can only hope that the media gives this speech lots of coverage.

There's also the irony that neither Bush nor Cheney fought in the Vietnam. Apparently, they think other Americans should have kept dying in the rice fields half away around world just as long as it wasn't them.

Monday, August 20, 2007

Risks of a bailout

Besides the moral hazard problems, one the biggest risks of a government bail is huge losses on the loans that go bad. In California and likely other coastal states, the collateral and not be moved without taking a huge hit:

An auction of about 135 foreclosed homes in San Diego Saturday provided more sobering news for mortgage lenders. Ramsey Su, an investor and former real-estate broker who attended, calculated that the high bids for the homes averaged 67% of the prices they fetched when they were last sold, mostly in 2004 or 2005. At a similar auction in San Diego in May, the average was 73%.

That's a loss of a 1/3rd before expenses! I'm highly doubtful Freddie Mac or Fannie Mae models take these kinds of haircuts into pricing risk. The capital markets see the risk and want nothing to do with this mess which why the secondary market for mortgages has shutdown. If the government steps in, taxpayers could be left holding a trillion dollar bag.

rewarding the irresponsible

There's a great deal of rhetoric both from left wing pundits and Democratic presidential candidates about how we need to save over-leveraged borrowers from foreclosure. I could not disagree more and while this may look cold hearted, I don't think it is.

None of these pundits are politicians are concerned renters can be kicked out their home for no reason at all on 30 days notice. This insecurity is considered the natural state of affairs for the second class citizens renters. However, when first class citizen "home owners" who bought their properties on zero down mortgages on loans they never had any hope of affording when the teaser rates expired are in danger of being kicked out their homes these same politicos declare it crisis and start advocating for massive subsidies from the responsible to irresponsible.

I rent and am subject to 30 day tenancy termination. I concluded that housing prices were dangerous overvalued in my area and I did not want to burden of the large mortgage. Renting if you are not comfortable with the size of the mortgage is the fiscally prudent decision. Unfortunately, renting is an inferior option to buying but because I'm prudent person I accepted the drawbacks. In addition to potentially having to find another home at very short notice, my rent can be raised any amount at any time and the level of repair of residence is only what the landlord chooses to provide.

I'm going to be outraged to pay $1 to bail out people who bought and can not their home afford it. I took hit on renting and now Clinton, Edwards, Dodd, etc want me to pay to somebody else's house because they might be kicked out for not being able to make their commitments. Cry me a river.

Democratic Candidates are almost uniformly pro-bailout

I'm most disappointed to see not a single candidate talked about borrower irresponsibility. It's all the fault of the banks and new economic boogie-man, the hedge fund. Biden sounds like he's the only with a clue which I find unsettling since I tend to see Biden as bloviator.

Here's the their answers from the ABC news transcript. Emphasis is mine.

STEPHANOPOULOS: We're running toward the end of the 90 minutes. I have a couple of quick questions, and then a final question.

This is -- this is basically a yes-no question. We've seem all this turmoil in the markets over the last couple of weeks, caused by the credit crunch and the crisis in the mortgage markets.

STEPHANOPOULOS: We saw, on Friday, the Federal Reserve lowered the discount rate for banks. Should they lower rates for everyone else, yes or no?

CLINTON: I'm glad they did what they did. But it can't be just left to a bail-out for the banks. We've got to figure out how we're going to figure out people facing foreclosures.

And I think a number of us have recommendations on that, that do not lend themselves to an easy yes or no.

DODD: Yes, I think it will happen in September. But we also need more liquidity. And they ought to be allowing Fannie and Freddie Mac to put more liquidity in the market.

It has seized up. You can't get a mortgage in America today.

EDWARDS: I agree with that. But we also need a home rescue fund for all the millions of Americans who are worried about losing their homes.

GRAVEL: All I would say is that there's no answer to that question. Just follow the money of the people on this dais and you'll see a response.


RICHARDSON: This is the Katrina of the mortgage-lending industry.

RICHARDSON: The answer to your question is yes, there has to be more liquidity, more funds in the market. What we need is more transparency between those that are making this business happen.

And what we also need to do is to not appoint officials that are in the industry to regulate that specific industry. The mortgage industry, they've become -- a lot of them -- a bunch of loan sharks.

BIDEN: The answer is yes. But we need, as the governor says, more transparency, particularly with regard to hedge funds and private equity funds. They are the ones that are causing this thing to go under. And there's no transparency, no accountability. We don't know how deep this problem is.

Chris will take care of it in the Banking Committee, and I mean that sincerely.

But we don't know how deep this problem is. But I think it's much deeper. It's almost as deep in terms of dollars, not liability, as the savings and loan crisis.

OBAMA: We do need more liquidity, but we're going to have to not only help home owners who are going to be losing their homes as a consequence of this; we're going to have to go forward and make sure that we've got the kinds of tough regulation when it comes to financial instruments to make sure that people who have saved and are trying to get their own home for the first time are not hoodwinked out of it.

OBAMA: And, unfortunately, the reason that we haven't had tougher regulation in part goes back to the issue of lobbying. This is where special interests have been driving the agenda. We have not had the kinds of consumer protections that are in place.

And that's why, when we have this debate about lobbying, we have to remind ourselves it has very real consequences for the people of Iowa and the people around the country.


KUCINICH: The answer is no. The Fed is actually looking at bailing out the creditors. And what we're looking at is a continuation of the problem and a postponement of the day of reckoning.

We need to have a government take strong action where we'll loan money to those who are in trouble. But we need to do that in exchange for having the power, the money-lending power that the banks have right now, come back to the government; government spends money into circulation; and then government can maintain control over the economy.

KUCINICH: Unless we take this action, we're looking at a situation of the collapse of our economy, and we're looking at a situation where these hedge funds will try to get a bail-out while millions of Americans lose their homes. Save the American homeowners.


Sunday, August 19, 2007

no bailouts

I've been alarmed by the various bailout proposals for borrowers facing foreclosure I've been hearing from politicians and some pundits. Paul Krugman moved into truly dangerous territory this week by calling for massive government intervention to rescue borrowers [excerpts from the Economist's View]:

The mechanics ... would need a lot of work, from lawyers as well as financial experts. My guess is that it would involve federal agencies buying mortgages — not the securities conjured up from these mortgages, but the original loans — at a steep discount, then renegotiating the terms.

This sounds like a bailout to me which puts the taxpayer at risk. My suspicion is that most of the borrowers can not pay full amortized 30 year fixed prime rate mortgage on their debt so any work out is going to be a bailout that reduces the principle loan. Additionally, most of these folks would not qualify for prime rate mortgages in the market so either their interest rates should be higher after the workout or they will being subsidized by the taxpayer as the government agencies will have to resell the loans at a discount since the coupon rate on the workout'ed mortgage will be too small to compensate for the future risk.

Krugman's idea is flawed by Senator Dick Durbin has an even worse one [excerpt from Calculated Risk]:

In September, Mr. Durbin, the Democratic whip, plans to propose amendments to the bankruptcy code, in a bill called the Helping Families Avoid Foreclosure Act. It would, among other things, permit writing down loans and stretching out payment terms.

Durbin is proposing that the property is not really collateral on the loan. The lender will not be able to repossess the property if the borrower fails to make payments and will be at the mercy what the bankruptcy court decides. This truly dangerous proposal will essentially make residential mortgages have the properties of unsecured personal loans. The result being that everyone taking out a new will pay higher interest rates to compensate for the risk the lender won't be able to access the collateral and will get their loan devalued by the bankruptcy court. Reckless borrowers who already have mortgages will get rewarded. Their mortgages will get reduced. The rest of us suffer..

I used to worry that Democrats would try to prop up unsustainable housing prices with taxpayer money like Krugman is proposing. Now I think it is more likely they will destroy the housing market by making lending unattractive. It would be years before lenders and investors know what to expect from bankruptcy proceedings under Durbin's proposal. The prudent thing for investors to do would just be to avoid the asset class entirely while the mess sorts itself out. Which means the jumbo market never comes back, which is bad news for California and other markets where conforming loans aren't big enough.

No doubt the response from Durbin, Schumer and Clinton will be to raise the conforming loan limit so the government through Freddie and Fannie can make the taxpayer take on the risk for every mortgage in America and if that goes wrong we are all going to be in world of hurt. All this because some politicians don't think those who were irresponsible and in their greed figured housing markets always go up are going to have to pay for their misdeeds by losing their houses.

It's almost enough to make me think Milton Friedman was right and the government should not interfere in the economy because they are more likely to make things worse instead of better.

Thursday, August 09, 2007

a worrisome concurrence

I get worried when I find myself in agreement with President Bush who I consider the worst president in the last hundred years and would be in the running for worst of time if not the abomination that was the Presidency of Andrew Johnson. Nonetheless, I agree with Bush that there should be no bailout for those facing foreclosure.

Bush also claimed the economy is in for a soft landing which I'm skeptical of. However, I've been thinking for years now that risk on residential mortgages is underpriced considering the unsustainable run up in property values and lax underwriting practices. Looks like other investors have come to agree with me and nobody wants to lend driving jumbo rates up.

It's really not possible to prevent this foreclosure wave without the government distributing 10s of billions if not 100s of billions of dollars to irresponsible people who borrowed more than can afford. A bailout of this scale would create moral hazard has borrows will not incentive to be responsible.

Wednesday, August 08, 2007

trolling for suckers

A story relayed to me today from from Mrs. Monkey In Chief (Mrs. MiC):

A woman rings the doorbell and introduces herself and invites Mrs. MiC to seminar for first home buyers. Mrs MiC says Mr MiC has run the numbers and we are better off renting to which the realtor replies, "well, if you are satisfied with that." Mrs MiC does like the realtor's snotty retort and proceeds to tell her that encouraging people to buy overpriced houses when they already have a decent place to live is not a very nice thing to do. To which, the realtor replays, "It's better than when I was lending industry." At this point, I'm laughing out loud.

This realtor almost certainly was a loan broker who sold tons of buyers on toxic loans. The buyers are responsible for looking out for themselves but nonetheless selling toxic loans is not professional for upstanding people. I'm guessing she lost that loan gig in the lender implosion so now she's recast herself as a realtor and roaming the neighborhoods trolling for suckers so she make a commission selling them a home just as prices begin their long slide.

Mrs MiC also noted that realtors trolling for suckers is what exactly what happened in the early 90's housing bust in Southern California. Lots of desperate realtors going door to door to try to find people dumb enough to buy before prices have bottomed out.

The housing bubble is bursting and its going to be bad ride for people who took on more debt than they can afford.

Money always runs away

When an asset class starts showing big loses, money ALWAYS runs away from it. And money is running from residential mortgages. LA is reporting that interest rates on jumbo loans have spiked with big lenders charging 8%.

Some this reaction is probably irrational as jumbos from borrowers with good credit and 20% down payments probably don't deserve such a high spread over conforming. But when money heads for the exits, it tends to be irrational. Investors don't make fine distinctions between sub-prime, Alt-A, and high grade jumbos when fear takes over. They just bolt. After the sub-prime / alt-A implosion is over, I suspect the risk premiums on all mortgages will be elevated for years.

The spike in the cost of jumbos is one more sign the housing bubble is bursting.

Tuesday, August 07, 2007

rewarding irresponsibility

Hillary Clinton wants to bail out irresponsible borrowers with taxpayer money. She's proposing a billion dollars for state programs to bail out borrowers. Home owners get every advantage under the sun from tax deductible interest to capital gains exemptions but apparently that's not enough. Now Clinton is telling us people who bit off more than they can chew are supposed to get bailed out.

I have little sympathy for people who took adjustable teaser rate mortgages and can't pay them as they adjust. There's one sob story after another in the media about f*cked borrowers who claim to not have understood their mortgages. If people can not be bothered to read and understand the documents relating to the biggest transaction of their lives, it's going to go badly for them.

If the issue is that borrowers are not competent to understand loans, and if the government really wants to do something useful about that problem, mandate borrowers take a test before then can get a loan. I don't see anyway to protect borrows who can't pass a simple test about how loans works so perhaps they ought not to have one. The test I'm envisioning would be easy for 6th grader who can handle decimals. I do what percentage of the population would pass.

Clinton's plan to eliminate prepayment penalties is pointless. Many of those loans with pre-pay penalties have extremely low teaser rate or negative amortization. Teaser loans will just move to negative amortization which is no better for the borrower.

The only reform I see as valuable is standardized disclosure for basic mortgage term similar to credit cards. A nice little table outlining the terms. Even with this reform borrowers should still read everything but it will be more efficient world if one can see a mortgage is crap glancing at the first page.

Deborah Bowen on Forum

Deborah Bowen did a fantastic job on KQED's Forum this morning explaining her decision to decertify insecure voting machines. I was extremely impressed with Secretary of State Bowen especially as she had to deal with a whiney Stephen Weir, Contra Costra County Clerk, who kept making lame arguments about how these touch screen machines hadn't been hacked yet.

Of course, there is no way of knowing whether a machine has been hack which is why these touch screen machines are so dangerous. This so called public servant Weir seemed much more concerned about how much work he'd have to do to switch to more secure systems than whether the integrity of an election could be compromised.

I hope Bowen has a long future ahead of her in California politics as this state desperately needs all the smart, competent and articulate people it can get in government. I can see Bowen making a great governor. Certainly better than Newsom or Villaraigosa who likely be running for the job in 2010.

Sunday, August 05, 2007

jtard at NYT outs fake steve

Fake Steve has been outed buy a New York Time Reporter. FSJ sums up the impact:

Now you've ruined the mystery of Fake Steve, robbing thousands of people around the world of their sense of childlike wonder.

I'm left wondering if FSJ will be as funny now that his identity is known. Will he mock Goatberg or Beastmaster Bill with same gusto now that he isn't anonymous. CNet is already after FSJ claiming FSJ has gone easy on Forbes. The jtards are all jealous of FSJ wit and following will work to bring him down to the boring level of American journalism.

Why this jtard named Brad Stone had nothing better to do I don't know. The NYT has plenty to make up for after that Judy Miller Iraq coverage. Stone should be investigating whose body is in Cheney's man size safe or exposing so of Abu Gonzales' lies. Instead, he's outted fake steve. Maybe Murdoch can buy the NYT next. It would at least put to rest the outdated notion that there any good newspapers left in this country.