Federal Reserve's $38 Billion Binge Bails out Markets--for Today

The Federal Reserve cannot shake the easy-money monkey off its back.

The Federal Reserve slipped out and found its crack dealer again and burned up another $38 billion in emergency liquidity to prop up housing and stock prices even though they might still be overpriced at current levels.

Do you feel good now, Chairman Bernanke? You needed $24 billion yesterday. You needed $38 billion today. What about Monday? How much will you need on Monday?

"Fed funds climbed above 6% on Friday, reflecting uncertainty in the financial system, and the Federal Reserve Board said it was providing liquidity to facilitate the orderly functioning of financial markets" (Forbes).

If we all marched off a cliff, would it be OK if we did it orderly?

Has the Federal Reserve ever heard of Adam Smith and the invisible hand of the market?

The Fed funds climbing above 6% is the market trying to tell the government that politicians are trying to force an unnatural, unsustainable policy--i.e., not only should the Fed not cut rates, borrowing is still too cheap.
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Hillary Clinton's Billion-Dollar Housing Bailout and Economic Illiteracy

Add Hillary to the bipartisan list

Your cost: $2 billion

Hillary Clinton showed that she has no idea what she is talking about but wants to spend at least $1 billion of your money doing it.

Hillary’s subsidy to the rich (tax cuts for rich bad, but subsidies for rich good?)

Hillary Clinton proposed a federal government $1 billion fund of your tax dollars to bailout home-mortgage delinquents, banks, and Wall Street investors (since the mortgage payment goes to the banks and investors).

Her website's 8/7/07 press release appeared to call for a second billion-dollar fund, for a total of at least $2 billion.

Hillary’s economic illiteracy

Clinton began to show her misunderstanding of basic economics in her CNBC interview by praising the recent tightening of lending standards as a way to prevent foreclosures, even though tightened lending standards do the opposite and will increase foreclosures in current conditions.

She announced in her website's 8/7/07 press release, "If I were President, I would . . . increase the supply of affordable housing." Apparently, she has no idea that (1) it is the currently huge housing inventory (supply) that contributed to the housing crash and foreclosure problem (lower home values, new homes available cheaper than an over-indebted seller's mortgage), and (2) market crashes automatically make housing more affordable (prices drop) but her bailout policies will prop up inflated prices and keep housing less affordable.

She apparently cannot decide whether she wants housing to be less expensive or more expensive because moments later her press release declared war on lower home prices, "To make matters worse, home prices are weakening."

Hillary’s elitism: “Let them eat cake”

Clinton started the patented family sob story in her CNBC interview but then showed more confusion by also stating that it was good that fewer low-income people can get loans because low-income people getting loans contributed to the housing bubble. She asserted that some people "just had no business getting into homeownership.”

It certainly was unwise for people at all income levels to take as much credit as anyone would give them but Clinton seems unable to decide whether she wants to increase the high liquidity that caused the housing problem (her $2 billion bailout) or decrease liquidity and restrict credit.

Hillary can’t spend your money unless you mail it to her

Clinton quickly followed her interview's “struggling family” routine with her other concern, “but it's also about the impact that this is having, and could very dramatically, have on our economy going forward." Remember that a bad economy decreases tax revenue to the government and many politicians do not like it when you send less money to fill their coffers--so stay at your galley oar.

Hat Tip: Another F#cked Borrower

European Central Bank Bailout for US Housing Bubble

European Central Bank Throws Gasoline on the Liquidity Fire

The European Central Bank (ECB) injected 95 billion Euros ($131 billion) at low 4% interest rates in response to a $2.2 billion suspension crisis at France's largest bank, BNP Paribas SA, which is suffering from an inability to fairly value its US subprime mortgage securities.

Loose credit caused the subprime mortgage mess of bad housing bubble loans making some mortgage securities worthless, so the ECB's bailout repeats the causes of the problem, extends the problem, and magnifies the problem by telling lenders, borrowers, and investors to continue to make stupid decisions because the government will bail you out at the expense of others (i.e. creates moral hazard).

Governments' indecisive bailout policy creates uncertainty and impairs our rational decision-making ability.

The US Federal Reserve added $24 billion of liquidity even though its recent Federal Open Market Committee (FOMC) decision not to cut the federal funds target rate was a refusal to add liquidity.

The bailout attempts reignite the loose monetary policy (over-liquidity) problem, increase moral hazard, send confusing mixed signals to markets, and could backfire by creating a panic.

More Media Economic Illiteracy on Housing Bubble -by Associated Press this Time

Previous: Reuters' Economic Illiteracy Denies Housing Bailout Will Cost Taxpayers Any Money
The Associated Press asserted:

"Massachusetts is among many states that have recently sought to ease spiking foreclosure rates by tightening lending regulations" (AP Business Writer Mark Jewell at Boston.com).

No, the opposite is true.

Tighter lending now increases foreclosures now by eliminating the top 2 options for a person who wants to get out of his/her bad loan by closing the account with a full repayment (no default):

• Reselling to Yourself (Refinancing): A troubled borrower who got in over his/her head is unable to refinance (same credit score no longer meets new standard when you "raise the bar").
• Reselling to Others: A troubled borrower who cannot afford his/her home finds fewer shoppers who can afford his/her home (the same tighter standards that prevent the "owner"'s refinancing also prevents potential buyers from qualifying for a mortgage to close the sale).

Tighter lending standards in the past would have prevented many foreclosures today (but that horse already has bolted), and tighter lending standards now might lower the forclosure rate in the future, but the immediate effect of new tighter lending standards today will be to increase the current spike in home mortgage foreclosures.

The article's claim that tighter lending regulations will ease the current foreclosure spike means that the AP is clueless about economic policy, or the state of Massachusetts is clueless about economic policy, or both.

Reuters' Economic Illiteracy Denies Housing Bailout Will Cost Taxpayers Any Money

Reuters apparently believes in the free-money-falling-from-sky theory of bailouts:

"The Massachusetts Housing Finance Agency will contribute $60 million, while Fannie Mae, the largest U.S. home funding source, will add $190 million, to the new fund.
Massachusetts taxpayers will not be asked to bail out borrowers, often with poor credit histories, who were wooed by subprime lenders' offers of attractive initial rates that often skyrocketed later.
Rather, the money for the fund will be raised when MassHousing sells taxable bonds with variable and fixed rates to private investors in the coming weeks, an agency spokesman said" (Reuters).

Where does Reuters think Massachusetts gets the money to pay the interest on the bonds?

Obviously, the only reason that Massachusetts taxpayers are taking out loans (bonds) and paying interest to bondholders is to bailout the delinquent borrowers who cannot pay their mortgages.

Reuters seems confused, since its article's title declared a bailout and then its article denied any taxpayer bailout.

Such nonsensical economic reporting makes one wonder how many Reuters reporters took dodgy mortgages and need a finacial bailout.

PS: California, Colorado, and Wisconsin are eying bailouts similar to the Massachusetts bailout, according to the National Council of State Housing Agency's Director of Housing Advocacy Garth Rieman, via Reuters.

More examples (unfortunately): More Media Economic Illiteracy on Housing Bubble -by Associated Press this Time

Massachusetts' "Big Dig" Housing Bailout Sticks Nation with Bill Again

Quarter-Billion-Dollar Housing Bubble Bailout in Massachusetts

Fed Bailout for the Rich State: Wealthy Massachusetts' "Big Dig" of a Housing Bailout Is a Big Dig into the National Purse . . . Again

The wealthy state of Massachusetts is planning for the rest of the country to foot the bill for its housing bailout by getting most of the quarter-billion dollars ($190 million) in bad-mortgage refinancing from the federally-chartered Fannie Mae. Massachusetts taxpayers are on the hook for the remaining $60 million through a state bond issue.

Homebuilders Seek Taxpayer Bailout in Kansas

Homebuilders Seek Taxpayer Bailout in Kansas

Proposed tax break for home builders studied by Kansas lawmakers

--July 15, 2007 Jim Sullinger article from The Kansas City Star at KansasCity.com

Feds Knew Subprime Mortgage Danger 1 1/2 Years Ago

A Confession, a Communist Connection, and a Congress of Academy-Award Nominees

US federal Housing and Urban Development (HUD) Secretary Alphonso Jackson was in Hong Kong shamelessly trying to unload imploding subprime mortgage-backed securities (MBS) on the Chinese with the promise of a bailout by US taxpayers (he mentioned US government backing in a 7/11/07 Bloomberg interview, viewable on BNN Bubble News Network).

Even more telling, Jackson claimed that the federal government including he and Ben Bernanke foresaw today's subprime mess "about a year and a half ago" (late 2005 or early 2006).

Remember Jackson's claim when the politicians do their Casablanca Captain Renault routine that they are shocked--shocked--to learn that there had been risky lending going on in this country.

UPDATE 4/13/08: Jackson was trying to dump MBS on Asia the month before the August 2007 effective Fed funds rate spike and stock-market quake, and the start of Bernanke's panicked bailouts.

Does Jackson's MBS shilling count as insider trading?

Irony or Crime?

• Late 2005/early 2006: Jackson/HUD and Bernanke/Fed know about mortgage time bomb.
  
• June 2007: Jackson/HUD celebrate Bush's "National Homeonership Month" ( HUD KICKS OFF NATIONAL HOMEOWNERSHIP MONTH Reform of the FHA will better “Promote and Protect Homeownership” News Release HUD No. 07-076 HUD Public Affairs 6/1/07).
• July 2007: Jackson/HUD try to dump MBS on Asia.
• August 2007: The bursting housing bubble/MBS market panic Wall Street and the Federal Reserve. The Federal Reserve begins bailouts in the so-called housing/stock/credit/liquidity/solvency crisis.

Alphonso Jackson update: You Paid $100k for Pictures of Your Fearless Government Leaders

Housing’s New Math: The Seller Pays the Buyer

Previous: Fed Takeover of Subprimes Renews Risk in Mortgage Lending

The LA Times actually tried to portray the federal government’s new taxpayer-backed risky lending as a return to old-fashioned prudence.

You decide:

The old days required a homebuyer to bring a 20% downpayment on a 30-year mortgage, which insured that he/she had his/her own "skin" in the game and an incentive to repay the remaining 80% so as not to forfeit his/her investment.

"Modernizing" and "Bringing the FHA into the 21st Century" with the Fed's New "Home Possible" Lending Practices

Congress is planning to slash the Federal Housing Administration (FHA) lending standard to 0% down and a 40-year mortgage. It is exactly the no downpayment condition, and therefore no home equity, and therefore no risk of the borrower's own money, that makes defaults more likely.

Further, the federally-chartered Freddie Mac offers the "Home Possible 100" with 0% down for up to $417,000 and 3% seller "contributions"--allowing a "buyer" (using the term loosely) to walk into a house worth almost double the national median price with none of his/her own money but with a suitcase full of the seller's money.

Yes, you must pay the buyer to live in your home.

Does that sound like old math or new math?

Fed Takeover of Subprimes Renews Risk in Mortgage Lending

The federal government seems less interested in stopping the subprime mess and more interested in muscling in on the franchise.

Reckless borrowing by unqualified borrowers caused the current housing crash.

Many Congresspeople accused "unregulated" risky lending by the private sector and declared that the solution is authorized risky lending by the government. The difference is that your tax dollars definitely will sit in the pile at the center of the green felt table.

Congress Christens FHA as Our New National Casino

The Federal Housing Administration (FHA) maneuvered to take over the subprime market:

"As an improved alternative to subprime lending practices, Bernardi discussed modernizing the Federal Housing Administration (FHA). 'Reforms must be made for the FHA to adapt to today's marketplace. We have modernized FHA as much as we can but need legislation to truly bring the FHA into the 21st Century. A new FHA could be an antidote for predatory lending and for subprime difficulties,' stated Bernardi" (FHA).

FHA "Modernization" and "Bring the FHA into the 21st Century" Are Euphemisms for Bailout-Backed Recklessness to Keep Housing Prices High

Congress' plan to "modernize" the FHA and "bring the FHA into the 21st Century" simply crowns the FHA as the new subprime king, moving the risk rather than eliminating it. In fact, since the FHA has an implicit promise that you will bailout bad loans with your taxes, one could argue that Congress' FHA "modernization" plan increases risk instead of decreasing it.

It only gets worse when you look at the details of new federal loans:
Housing’s New Math: The Seller Pays the Buyer