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Friday, July 18, 2008

Housing/Subprime/Credit Roundup — July 18, 2008

Items of Interest:

Ben Bernanke and Barney Frank Form Improbable Alliance Over Subprime CrisisBloomberg:
Bernanke, Frank Form Improbable Alliance Over Subprime Crisis -- After Federal Reserve Chairman Ben S. Bernanke detailed to a U.S. House panel yesterday the Fed's new efforts to toughen mortgage-lending rules, Representative Barney Frank praised him and panned his predecessor.

``If the Federal Reserve Board, before you became the chair, had promulgated the rules that you promulgated on Monday, I do not think we would be in as dire a situation,'' Frank said at a House Financial Services Committee hearing.

That comment, a swipe at former Fed Chairman Alan Greenspan, underscored how Frank and Bernanke have become allies in dealing with the worst housing recession in 25 years...

related:
Conservative publisher Mort Zuckerman is also a fan of Barney Frank.

Mortimer B. Zuckerman / U.S. News:
Fix Congress's Housing Fix -- The bill before Congress reflects how good government intentions are perverted by interest group politics ...

It is appropriate for the government to try to create a firewall around foreclosures because the country faces a real macroeconomic crisis in the danger of an accelerating, self-reinforcing collapse of home prices. Rep. Barney Frank put it well when he said, "The economy has been taken hostage by people that took some very bad decisions. The answer is to pay as little ransom as possible to the least ill-deserving people we can find." The legislation before the Congress, alas, benefits too many of the most ill-deserving people and companies...
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Angelo Mozilo sister comes to his defenseLA Times / L.A. Land blog:
Lay off my brother: Mozilo's sister blogs in his defense -- No sooner had I taken another shot at Countrywide Financial than I saw this -- a defense of former Countrywide CEO Angelo Mozilo on the Huffington Post, written by his sister, Lori.

The full title Lori Mozilo's post is "Vilified: What you don't know about my brother, Angelo Mozilo."

The gist is: My brother was in the mortgage business to help hard-working, middle-class people get loans to buy houses, and he's not a crook, and shame on Congress for treating him like one...
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Naked Capitalism:
Roubini: Restructure Fannie, Freddie Debt, Skip "Mother of All Bailouts" -- Nouriel Roubini has consistently been accurate in predicting the course of our snowballing credit crisis, and has also made some important intellectual contributions to the discussion. such as how the breakdown of the Bretton Woods system has lessons for the future of our Bretton Woods 2 currency program.

But in my view, Roubini's post today is his most important contribution to date. Sadly, I anticipate, just like his early warnings of coming financial trouble, that it will be ignored.

Roubini argues that restructuring Fannie's and Freddie's debts is not an awful prospect. They have large books of, by housing standards, pretty decent assets. He estimates that the haircut required would be only 5%, which could either be handled via principal restructurings or payment reductions...
...Sixth, the existence of [Government-Sponsored Enterprises] GSEs...is a major part of the overall U.S. subsidization of housing capital that will eventually lead to the bankruptcy of the U.S. economy. For the last 70 years investment in housing –- the most unproductive form of accumulation of capital -– has been heavily subsidized in 100 different ways in the U.S.: tax benefits, tax-deductibility of interest on mortgages, use of the FHA, massive role of Fannie and Freddie, role of the Federal Home Loan Bank system, and a host of other legislative and regulatory measures.

The reality is that the U.S. has invested too much – especially in the last eight years – in building its stock of wasteful housing capital (whose effect on the productivity of labor is zero) and has not invested enough in the accumulation of productive physical capital (equipment, machinery, etc.) that leads to an increase in the productivity of labor and increases long run economic growth. This financial crisis is a crisis of accumulation of too much debt -– by the household sector, the government and the country –- to finance the accumulation of the most useless and unproductive form of capital, housing, that provides only housing services to consumers and has zippo effect on the productivity of labor. So enough of subsidizing the accumulation of even bigger [McMansions] through the tax system and the GSEs...
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related:
Seeking Alpha:
Just How Terrible Is Housing as an Asset Class? Roubini Weighs In -- For some time now, we've been noting that the recently-concluded housing bubble wasn't like most of the bubbles that preceded it. Unlike the railroad, telegraph, and dot-com bubbles--which, for all their short-term wreckage, created new infrastructure of immense economic value, as Daniel Gross argues in Pop!--the housing bubble has left behind virtual ghost towns, economically useless infrastructure (e.g., roads, water, and power leading to virtual ghost towns), and a brutal overhang of household and government indebtedness.

So we were pleased to see the (sometimes breathless, often prophetic) Nouriel Roubini make special note of the unproductive nature of the U.S. housing stock...

Nouriel Roubini's Global EconoMonitor:
Insolvency of the Fannie and Freddie Predicted Here Two Years Ago. What Happens Next? Or How to Avoid the “Mother of All Bailouts”
-- Two years ago in July and August of 2006 this author first presented here his analysis of why the U.S. would experience its worst housing recession of the last 50 years, why home prices would fall at least 20%, why the collapse of mortgages would start with the “subprime” ones (a term that at that time was unknown to 99.9% of the public including most investors) and how this housing bust would lead to a severe banking crisis and a credit crunch that would tip the U.S. economy in a recession by 2007. My timing of the recession call was off by six months – as the recession started at the end of 2007 rather than mid-2007 as then predicted – but all the other predictions turned out to be correct...
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Was Chuch Schumer responsible for bank run on IndyMac?Peter Viles / L.A. Land:
Feds cite Schumer in collapse of IndyMac — An important angle in the IndyMac failure that may get lost in ominous headlines tonight and tomorrow: federal regulators pointedly cited U.S. Sen. Charles Schumer, D-N.Y., in explaining the bank's failure. In simple language, federal regulators blamed Schumer for a run on the bank.
discussion:
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zero hedge

Calculated Risk

Mish's Global Economic Trend Analysis

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia