patrick.net

There really is no sense to making light of this. It's real and it is upon us. There will be animosity in abundance and we're already seeing the "blame game" being played out in markets from coast to coast. Since 70% + Americans "own" their own home there's bound to be a few nut jobs in the bunch. In Portland alone there were 4 stockbroker suicides following the dot.bomb era. Much of this is reported simply as a suicide but those in the industry now exactly why this individual was "distraught".

HARM said:
Plus we had our glorious former Fed chief shilling for option-ARMs at the worst possible moment (when rates were still at 1%), when he damned well knew that HE was about to raise them.

I have often wondered what AG was up to when he made this recommendation. I have my own theory about it. There is a good documentary which is occasionally re-run on PBS called "Commanding Heights." The documentary includes a discussion of the back-room Fed-engineered bailout of LTCM. Before the crisis hit the headlines there were a lot of back room machinations to figure out how to keep the thing afloat so as to minimize a systemic meltdown.

So my theory about AG's ARM endorsement is that similar machinations were taking place regarding a hidden bailout FNM and the rest of the mortgage industry. Low rates hammered big institutional mortgage lenders like FNM because they were carrying on their books a ton of mortgages which could be (and were) refinanced at substantially lower rates. Yet FNM did not have the same ability to refinance its cost of funds, since Fannie and Ginnie Mae bonds carry a fixed rate of interest.

So.... the Fed decided to try to offload some of the interest rate risk on to consumers going forward (from 2001) in order to give FNM a chance to get its books in order. Of course, we are still waiting for the restated FNM financials. Should be interesting when these finally make into the public domain.

PS: HARM, thanks for the link to Randy's earlier post on ZIRP--interesting reading.

Glen,

Some time back HARM said that GSE's basically were designed to:

Privatize Profits and

Socialize Risk!

I'm not exactly foaming at the mouth to hear the "re-stated numbers" b/c we all know it will be fluff and hot air. I guess the only thing that remains to be seen is just how blatant this is going to be!

I do not think GSEs are necessarily. I do not like moral hazards.

Please unlock my comment. I have no idea what blasphemous words I happened to use.

socialist, I believe.

reposting with some grammatical fixes.

The democrats have ruined this country by pandering to the poor with all kinds of zozialist programs.

Peter, regarding US interest rates (long bonds), I think you have a good point. However, with JCB raising their interest rates, the YEN carry trade will have to unwind. That’ll result in selling US bonds and paying back the borrowed YEN. Therefore, there’ll be downward pressure on US bonds (upward pressure on long-term interest rates). Correct me if I’m wrong.

SQT,

I wasn't sure how to up/down load the pictures of my rented sh@tbox so I e-mailed them to you. Can you create a link so all may witness the care and quality that goes into today's homes?

Many thanks,

DinOR

Thanks for the link, SQT. It's fairly critcal of the GSEs overall, but I take exception to this part:

"By eliminating this temptation [of holding large portfolios of MBSs] and increasing oversight, the housing GSEs can be the shining institutions that they claim that they are - and that we aspire for them to be," he said.

I see absolutely no reason why the GSEs even need to exist, or at least exist as quasi-government entities --with the gargantuan moral hazards & implicit taxpayer bailout "guarantees". What public "benefit" have they provided exactly? Have they lowered housing prices? Just the opposite, in fact. Have they lowered overall mortgage interest rates? Nope --Alan Greenspan himself debunked that myth a while ago. The private MBS market, if freed from GSE & Fed manipulation --and, *gasp* actually regulated in a way to benefit CONSUMERS-- could handle mortgage liquidity and risk just fine, thank you.

But, overall this was about as critical as comments coming from Congress can be, I suppose.

Today's yield curve (from http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml)

1 m 3 m 6 m 1 y 2 y 3 y 5 y 7 y 10 y 20y 30y
4.88 5.05 5.27 5.22 5.12 5.07 5.04 5.05 5.08 5.23 5.12

Very clear inversion.

Regarding posting images:

Try ImageShack. You can post a link to your shack-hosted images. It's free.

GC, Sorry but I could not find the blocked comment in my moderation queue. It's generally best to spell 'socialist' as 'soc-ialist' and post your links one at a time.

HARM, I believe someone went ahead and unlocked it. Thanks.

@DinOR & SQT,

I have a solution for the image file uploading/hosting issue. I don't have time to go into it right now, but we can speak offline after business hours.

HARM,

That's a roger.

seamus,

Uh for them to be considered "sales people" would tend to imply that they had at least a working knowledge of the product? Most are "tools". They just mimic what their broker told them to say. There is little independent thought and certainly NO consideration as to what would be best for the "client" long term.

How can anyone resist granite countertop? Must over-bid 100K to get it! :)

SQT/seamus,

Yeah, but the difference is that a "salesman" stays with it until he/she closes the deal. Realtors on the other hand simply play the numbers game. They know we all need a place to stay and most of us own. So if you don't buy maybe the next guy/gal will! They cruise people around looking at a few homes and let you sell yourself. They're just there to write up the offer. That's not "selling" Not in my book.

So if you don’t buy maybe the next guy/gal will!

They may also pressure sellers too:

If you don't reduce your price now maybe your unneighborly neighbor will! :)

OT: Black Sea Fleet May Move to Syria

http://www.khouse.org/enews_article/2006/1087/print

Another Great Game on the horizon.

Black Sea Fleet May Move to Syria

Hmm... gold is shining again.

Let's see... how many potential conflicts are we looking at?

1. North Korea
2. Iran
3. India-Pakistan
4. Israel-Syria

History will look back at this era and tell us that the future of US is being decided in the middle east. If Americans lose there, the Americana (and the attendant way of life) as we know today will cease to exist.

It is debatable whether US should've invaded Iraq or not. But once US decided to get involved, she has no choice but to stay until total victory (in the political sense). That's why I find those politicians clamoring for US disengagement in Iraq either totally ignorant or traitorous.

The Middle East is the throat of US, South America her under-belly, Western Europe her former allies.

To US, North Korea is just an annoyance. To Japan, a manageable threat.

If the Russians are planning to move their Black Sea Fleet to Syria, they had better hurry up! LOL.

Korea has a strategic importance to China and Japan. But to a global player such as US, Korea is only important because Japan is a close ally of US.

Korea serves as a bridgehead to Northeastern China and Russian Siberia. It's evident from the map and history. Northeastern China could be easily cut off from the mainland. The Japanese did it. The communists also did it (to isolate and defeat the large nationalist army stationed there).

Joe,

The news could be an attempt to bluff. But it is evident that the Russians would fight the US influence in the middle east. US won round one (by occupying Iraq). But the end result won't be known until 20-50 years later.

I don't what Myers meant exactly. But here's a quote from him:

On 27 September 2005, only three days before leaving his post as Chairman [of the Joint Chiefs of Staff], [Richard] Myers said of the war in Iraq that, "the outcome and consequences of defeat are greater than World War II."

It is debatable whether US should’ve invaded Iraq or not. But once US decided to get involved, she has no choice but to stay until total victory (in the political sense). That’s why I find those politicians clamoring for US disengagement in Iraq either totally ignorant or traitorous.

I wouldn't be too sure about that. The whole "pulling out of Iraq is a mistake/treason" rhetoric to me is a lot like the "escalation of commitment" syndrome that we see in f@cked borrowers. "We can't cut our losses now, because we've already got too much invested/at stake", etc.

At some point you need to rationally calculate whether or not any additonal commitment or continued involvement is worth the extra price. I fail to see what additional net benefit staying there is supposed to provide for the U.S. It looks like civil war along tribal lines is already well underway and to me, fewer U.S. troops means fewer U.S. targets. For that matter, we need to wean ourselves off ME oil as soon as possible for our own sake.

The news could be an attempt to bluff. But it is evident that the Russians would fight the US influence in the middle east. US won round one (by occupying Iraq). But the end result won’t be known until 20-50 years later.

More proxy wars? Looks like Iraq is a small conflict compared to what lies ahead. Does anyone know Mundane Astrology?

GC,

You are right.

I wonder how far the Russians are willing to push this?

I'm sure they are basically bluffing. Their military is in even worse shape than during the Cold War. They could not possibly depoly a large number of troops, planes, or ships to the Middle East, and even if they could, the troops would be ineffective. Better than the ME troops, but still pathetic by our standards.

Then again, they only have to deploy a few thousand to make things ugly. They're still a nuclear power, so we really can't be attacking thier soldiers.

Still, though, I would think that we could inflict unimaginable pain -- economically, politically, and through espionage, if necessary -- on the Russians if they were to start throwing their weight around in the region like that. And the Israelis might well call their bluff, even if we don't.

I’m sure they are basically bluffing. Their military is in even worse shape than during the Cold War. They could not possibly depoly a large number of troops, planes, or ships to the Middle East, and even if they could, the troops would be ineffective. Better than the ME troops, but still pathetic by our standards.

But they have over 10K of nukes. And we will be very nervous if they somehow lose track of some in that particular region.

I don't think Russia or China really wants a war with each other or anyone else. Putin's army can't even deal with the insurgencies in long held areas. China's economy is very fragile and growth dependent, and any disruption would cause fairly disasterous repercussions - the Communist-in-name-only leadership haven't forgotten how Mao et cie took power, yet.

Joe,

The most dangerous enemy of all is an enemy who believe they got nothing to lose, or worse, think that their rewards come in the afterlife. When these people come about in large numbers, it's best to stay out of the way and let them self destruct. America really needs to get out of Iraq. There is no upside. We don't have the political will to beat a whole region into submission. And every second we're there, we'll be resented for the same reason all occupying forces throughout history are resented. It really doesn't matter how nice or "freeing" we are, and we're not all that nice or "freeing". When we meddle in other people's destinies, they will be resentful and they will blame us for every single thing that goes wrong.

Just look at most of Africa. After 40+ years of post-colonial governments, they still blame everything going wrong on the European Imperialists.

Astrid,

it’s best to stay out of the way and let them self destruct.

Unfortuantely, they're coming here and destructing us. Isolationsim ended on 9/11.

The most dangerous enemy of all is an enemy who believe they got nothing to lose, or worse, think that their rewards come in the afterlife.

This is why they cannot be allowed to possess WMDs.

After 40+ years of post-colonial governments, they still blame everything going wrong on the European Imperialists.

They should look at Singapore, Macau and Hong Kong. Not only people in these ex-colonies are not starving, they actually have excellent seafood!

Unfortuantely, they’re coming here and destructing us. Isolationsim ended on 9/11.

Sorry, but I don't recall any of the 9-11 hijackers being from Iraq.
If Syria attacks us, do we bomb Canada?

There are plenty of successful examples of thriving democratic governments that were originally forcibly created by occupying powers. The post-Civil War southern USA. Japan. Germany. Panama. Greneda. India. The Phillipines. We're up to what, 20% of the world's population?

HARM,

The whole region is sick, you know that. Sadaam was a secular Soviet strongman. The Iranians are the religious strongmen. The Saudis are corrupt monarchist strongmen. They're all cut from the same cloth, and they all breed angry young men who aspire to kill us.

We are trying to reform the whole region, not just Iraq. We had to start somewhere.

They are coming to kill us. We've got to do something.