December 11, 2007
Saving bad mortgages and the Free Market
.
I see writings everywhere that people are upset with legislation to not allow a few tens of thousands of 'resetting' mortgages to default. Damn those stupid borrowers they say. Let the free market work. To me this is horrendously uninformed and naive thinking. I say.
What you espouse seems so right; so logically straight forward. It, however, for the most part is simply dead wrong and off target.
Forget entirely who made the loans, both the borrower and the initial lender. Trillions of dollars of mortgage loans were made and having been made these promises to pay became assets; account receivables to the hedge funds and institutions that subsequently purchased them.
Any middling good economist knew that excesses were going on and that with a rise in interest rates a ton of these CMO assets would default or otherwise decline in value.
So,and nevertheless, the pros, the hedge funds and their mega wealthy clients and other financial institutions still gobbled up these assets.
There was indication aplenty that the ratings were hyped on CMOs and that the financiers were buying some portion of junk assets. Caveat emptor.
In summary, the big boys bought crap assets and being leveraged their entire equity is exposed. As and if the free market was nakedly allowed to operate the big boys equity and concomitant lending resources would evaporate.
Hence the government steps in and says, "You know, the two hundred billion in mortgages that are shaky? Well, we're going to going to say that they are okay for the next cycle at least."
And you say, "Oh, they're now okay and no one needs to write off their equity and go out of business. How swell is that?"
Bottom line. The government cares not a whit that Jane, Joe, Dick or Harry will default and lose homes. They care that the big boys will tank due to their stupidity and that the credit resources of America will then hemorrhage.
Unfortunately, allowing the free market to work in this instance could be a mega disaster for all so the big money guys will of necessity be bailed out.
Jane and Joe, not so much.!
I see writings everywhere that people are upset with legislation to not allow a few tens of thousands of 'resetting' mortgages to default. Damn those stupid borrowers they say. Let the free market work. To me this is horrendously uninformed and naive thinking. I say.
What you espouse seems so right; so logically straight forward. It, however, for the most part is simply dead wrong and off target.
Forget entirely who made the loans, both the borrower and the initial lender. Trillions of dollars of mortgage loans were made and having been made these promises to pay became assets; account receivables to the hedge funds and institutions that subsequently purchased them.
Any middling good economist knew that excesses were going on and that with a rise in interest rates a ton of these CMO assets would default or otherwise decline in value.
So,and nevertheless, the pros, the hedge funds and their mega wealthy clients and other financial institutions still gobbled up these assets.
There was indication aplenty that the ratings were hyped on CMOs and that the financiers were buying some portion of junk assets. Caveat emptor.
In summary, the big boys bought crap assets and being leveraged their entire equity is exposed. As and if the free market was nakedly allowed to operate the big boys equity and concomitant lending resources would evaporate.
Hence the government steps in and says, "You know, the two hundred billion in mortgages that are shaky? Well, we're going to going to say that they are okay for the next cycle at least."
And you say, "Oh, they're now okay and no one needs to write off their equity and go out of business. How swell is that?"
Bottom line. The government cares not a whit that Jane, Joe, Dick or Harry will default and lose homes. They care that the big boys will tank due to their stupidity and that the credit resources of America will then hemorrhage.
Unfortunately, allowing the free market to work in this instance could be a mega disaster for all so the big money guys will of necessity be bailed out.
Jane and Joe, not so much.!
Labels: bail out, cmo, collaterixed mortgages, collaterized mortgages, mortgage markets, Saudi arms, sub prime
August 28, 2007
A Capital Tax Idea
.
2006 Wall St bonuses; $25 Billion
As the big boys on Wall Street direct trillions in capital flows to derivatives, rank speculation and the latest hot packaged products like sub-prime mortgages they whet their beaks, like the mob, at every turn.
Why not place a one one hundreth of a per cent tax on these flows to fund social security and health care.
It would be a manifest boon to American workers who toil at multiple jobs to create this capital and keep the economy going.
ps. I mentioned this idea to a staunch corporate conservative friend who said the idea is 100% valid; but without a guaranteed mechanism that the Dems would not keep increasing the tax, it was dead on arrival.
2006 Wall St bonuses; $25 Billion
As the big boys on Wall Street direct trillions in capital flows to derivatives, rank speculation and the latest hot packaged products like sub-prime mortgages they whet their beaks, like the mob, at every turn.
Why not place a one one hundreth of a per cent tax on these flows to fund social security and health care.
It would be a manifest boon to American workers who toil at multiple jobs to create this capital and keep the economy going.
ps. I mentioned this idea to a staunch corporate conservative friend who said the idea is 100% valid; but without a guaranteed mechanism that the Dems would not keep increasing the tax, it was dead on arrival.
Labels: ceo salaries, mortgage markets, sales tax, VAT Tax on Capital flows
