Bernanke: Talks the Dove, Acts the Hawk

[lb]

Re: Bernanke: Talks the Dove, Acts the Hawk

Not to be outdone, JP Morgan gets on the list.

http://www.federalreserve.gov/boardd.../20070820c.pdf

[Verrocchio]

Re: Bernanke: Talks the Dove, Acts the Hawk

OMOF or OMFG?

In a serious vein, a second Fed move that runs parallel to the OMOF scheme is reported on Friday, 8/24, on CNNMoney.com (Fortune). The article reports that the Fed permitted Citigroup and BofA to lift the limits on the percentage of capital that they are allowed to loan to their brokerage affiliates from 10% to around 30%. This temporary exemption allows them to provide liquidity to the affiliates (holding mortgage-related loans and securities).

http://money.cnn.com/2007/08/24/maga...ion=2007082415

[Charles Mackay]

Re: Bernanke: Talks the Dove, Acts the Hawk

This article by Lee Adler supports the "Act like a hawk" implications outlined by EJ above.

Media Gets It Wrong- The Fed is DRAINING! - WSE Pro

by Lee Adler

Contrary to what the financial infomercial media would have you believe, the Fed continues to steadily and consistently drain liquidity from the markets.

They didn’t conduct any open market operations today, allowing $3.5 billion from the repo pool, and for the second week in a row they announced that at next week’s Treasury auctions they would not renew $5 billion of 4 week T bills which they hold. These actions result in the 5 day net dropping to an unbelievable $14 billion drain. The Fed acted to drain reserves with the Fed Funds rate at 4.88 overnight. It would appear that their new, but unstated, target is around 5%. The only question is when will they make it official.

Compare this 5 day drain with the nonsense being reported by clueless “journalists” in the financial infomercial media. Most reports that I have seen are reporting only the amounts added by the Fed without considering the expirations. Some stories reported $26 billion in Fed adds over the last week. Others reported over $120 billion in the last couple of weeks. Both are flat dead wrong, and misleading to the market and to the public. The Fed is NOT adding liquidity to the system in any way. And the $2 billion borrowed at the discount window by the 4 whoresmen of the banking business doesn’t change a thing. Based on the Fed data last night, not a single other bank came to the window.

Making matters worse, foreign central banks dumped Treasuries for an unprecedented fourth week in a row.

[jk]

Re: Bernanke: Talks the Dove, Acts the Hawk

cfc only has to buy back the pools if it allows modifications on the mortgage terms. ergo, no modifications if you got your mortgage from cfc. go straight to foreclosure, do not pass go.
rumor has it that boa was the source of most [all?] of the 11billion credit line, so it was already in pretty deep. the deal it got on its convertible preferred was pretty juicy and accretive to boa earnings.

[bill]

Re: Bernanke: Talks the Dove, Acts the Hawk

BoA's $2B convertible preferred in CFC should give them a prime seat at CFC's bankruptcy table. Choice pickings?

After reading this article I have to ask myself why BoA purchased this deal knowing the buy back agreements CFC signed with so many mortgages.
This report may shed some light on the details however without having a copy of the buy back agreements one can only speculate from this article.

http://www.nytimes.com/2007/08/23/bu...in&oref=slogin

Published: August 23, 2007
Expanding rapidly as the nation’s largest home mortgage company, Countrywide Home Loans quietly promised investors who bought its loans that it would repurchase some if homeowners got into financial difficulties.
But now that Countrywide itself is struggling, it may not be able to do so, making it even harder for troubled borrowers to reduce their interest rates or make other changes to their loans to avoid foreclosure.
The possibility that Countrywide may have to buy back mortgages that it sold comes on the heels of its announcement last week that the tightening credit markets had forced it to draw on its $11.5 billion line of credit from a consortium of banks, a move that sent the market plummeting.
But yesterday, Bank of America agreed to invest $2 billion in Countrywide, buying preferred shares that carry an interest rate of 7.25 percent and can be converted into common stock at $18 each.
“Bank of America’s investment in Countrywide represents a vote of confidence and strengthens our balance sheet, enabling us to position Countrywide for future growth and success,” Angelo R. Mozilo, chief executive of Countrywide, said in a statement.
Countrywide, with its stock depressed, had been seen as a prospect for a takeover. But any obligation the company has to buy back loans may complicate discussions with potential investors or buyers.
The repurchase obligations are discussed in Countrywide’s prospectuses and pooling and servicing agreements that cover about $122 billion worth of mortgages packaged and sold to investors from early 2004 to April 1 of this year.
The agreements said that Countrywide Home Loans, a unit of Countrywide Financial, would buy back mortgages in the pools if their terms were changed to help borrowers remain current. Such changes are known as loan modifications. In general, it is difficult for homeowners to get loans modified if they are in a securitization pool.
It is unclear how many modified loans are involved. But it would cost $1.2 billion for the company to repurchase 1 percent of the loans in the pools at issue. Repurchasing 5 percent would cost $6.1 billion. When such buybacks are made, the original amount of the loan is paid into the pool and divided among the investors.
Under the terms of the loan pools, the decision to modify a mortgage is left to the company that services it. Servicers deal directly with borrowers, taking in monthly mortgage payments and sending them out to the investors in the pools. Most of Countrywide’s loans are serviced by its Home Loan Servicing unit.
But Countrywide’s servicing unit may have less incentive to help troubled borrowers who are interested in working out their loans, analysts said, because doing so could put the parent company on the hook to buy back a loan.
“With the volume of adjustable-rate mortgages that Countrywide has originated, their liquidity crunch potentially eliminates a viable tool to keep mortgages affordable in the face of impending interest rate resets,” said Kevin Byers, a principal at Parkside Associates, a consulting firm in Atlanta and an authority on securitizations.
According to company figures, last year 45 percent of Countrywide’s loans had adjustable rates; many begin with low rates and adjust to much higher levels.
Agreeing to buy back loans that are modified is highly unusual and perhaps unique among pools issued by companies like Countrywide, Mr. Byers said. Pools backed by mortgages issued by Fannie Mae and other government-sponsored entities typically include such language.
It is likely that Countrywide put the language into its agreements as an incentive to make its mortgage pools more attractive to investors, in turn generating more money for Countrywide when it sold them.
A Countrywide spokesman, Rick Simon, said that the company’s servicing unit was interested only in keeping loans performing and that its modification decisions would be based on that goal.
“Investors rate servicers based on their ability to keep loans in a performing state and to turn nonperforming loans into performing loans,” he said. “The fees collected for servicing are based on the loans performing.”
Loans that reach foreclosure are expensive for both lenders and servicers, Mr. Simon added.
But servicers must also consider the interests of investors who bought the mortgage pools for the cash flow they generate. If the cash flow drops because of loan modifications, some investors will be unhappy.
Mr. Simon would not say how many loans Countrywide had modified and bought back as a result of the pooling agreements. But Countrywide’s financial statements from last year show that it bought fewer delinquent loans out of securitization entities than in previous years. Those purchases totaled $1.5 billion last year, down from $3.8 billion in 2005 and $3.4 billion in 2004.
Under most agreements, the amount of loans that can be modified in any pool is limited to 5 percent, unless the mortgage borrowers are defaulting or seem to be about to default. Mr. Simon said that the pooling agreements indicating that Countrywide was obligated to buy back modified loans applied only to mortgages that are not in danger of defaulting.
But the language in the pooling agreements from 2004 through much of 2007 does not state this clearly. Only as of April 1 do Countrywide’s pool terms begin stating that the company is not required to repurchase modified loans.
Mr. Simon said this change in language was made to clarify the original intent of the agreements.
Many subprime loans being serviced by Countrywide are in trouble. As of June 30, almost one in four subprime loans serviced by the company were delinquent, up from 15 percent in the period a year ago. Almost 10 percent were delinquent by 90 days or more versus last year’s rate of 5.35 percent.
Loans can be modified to try to keep homeowners from losing their property. Major changes like reducing the interest rate are considered a loan modification.
Lesser changes are not, strictly speaking, modifications. Getting a delinquent borrower current on a loan by adding the payments that are owed is considered a forbearance, not a loan modification.

[zoog]

Re: Bernanke: Talks the Dove, Acts the Hawk

here's something else correlated with gas prices

http://www.pollkatz.homestead.com/fi...7_image001.gif

Nice. Bread and circuses.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

Mr. Chairman,

Is "this latest deflationary jag" that which we were privileged to see in your Comments a week back, http://www.itulip.com/forums/showthr...4794#post14794

or is there actually a picture of the "latest deflationary jag" through today?

Why not put that graph up on iTulip weekly? I sure would like it if the Chairman could work that into his schedule along with all the other chairmanly duties.

Oh, and congratulations on being made Chairman, you deserve it, Finster.

Yes it is one and the same, Jim. Thanks. Re your graphic request:

[jk]

Re: Bernanke: Talks the Dove, Acts the Hawk

here's something else correlated with gas prices

http://www.pollkatz.homestead.com/fi...7_image001.gif

[DemonD]

Re: Bernanke: Talks the Dove, Acts the Hawk

This latest deflationary jag is also unlikely to produce deflationary readings in conventional consumer price statistics unless it goes on for quite a spell. It's still out-and-out deflation, but it takes a lot of it to move the needle in such crude measures.

You know what's interesting is that my on-the-ground observation bears out deflation. Gasoline in Los Angeles has gone down significantly in the past 6 weeks, and for what reason? Supply remains tight, demand by all accounts appears high, and price per barrel of oil is still up significantly, so I wonder if this is what has happened with gas prices. I've definitely been convinced that the price of oil and gas is almost 100% correlated to the value of the currency, and if it truly is then this would be a bellweather of that.

[Jim Nickerson]

Re: Bernanke: Talks the Dove, Acts the Hawk

Your latter suspicion is correct, Demon. When we encounter brief periods of deflation, most people merely see disinflation because they're looking at statistics that lag, smooth out and blur the details. Consumer prices, especially. In the last significant deflation that occured in 2000-2002, for example, the monthly CPI only briefly went negative at the tail end of the deflationary phase, and to my recollection never actually dipped below zero on an annual basis. By the time that would have happened we were back to rip-roaring inflation.

This latest deflationary jag is also unlikely to produce deflationary readings in conventional consumer price statistics unless it goes on for quite a spell. It's still out-and-out deflation, but it takes a lot of it to move the needle in such crude measures.

Mr. Chairman,

Is "this latest deflationary jag" that which we were privileged to see in your Comments a week back, http://www.itulip.com/forums/showthr...4794#post14794

or is there actually a picture of the "latest deflationary jag" through today?

Why not put that graph up on iTulip weekly? I sure would like it if the Chairman could work that into his schedule along with all the other chairmanly duties.

Oh, and congratulations on being made Chairman, you deserve it, Finster.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

... And hasn't finster already shown that we have had an actual dollar deflation, so wouldn't that disinflation assertion have been proven wrong? Or was "disinflation not deflation" talking about a longer time period than what finster's chart showed?...

Your latter suspicion is correct, Demon. When we encounter brief periods of deflation, most people merely see disinflation because they're looking at statistics that lag, smooth out and blur the details. Consumer prices, especially. In the last significant deflation that occured in 2000-2002, for example, the monthly CPI only briefly went negative at the tail end of the deflationary phase, and to my recollection never actually dipped below zero on an annual basis. By the time that would have happened we were back to rip-roaring inflation.

This latest deflationary jag is also unlikely to produce deflationary readings in conventional consumer price statistics unless it goes on for quite a spell. It's still out-and-out deflation, but it takes a lot of it to move the needle in such crude measures.

[DemonD]

Re: Bernanke: Talks the Dove, Acts the Hawk

In regards to the initial post - this is very bullish for the dollar then isn't it? After months and years of dollar depreciation, if the Fed is defending the dollar (for a change), wouldn't Fed actions in this manner lead to a rise of the dollar?

Especially if they hold steady on Fed Funds Rate in September?

And hasn't finster already shown that we have had an actual dollar deflation, so wouldn't that disinflation assertion have been proven wrong? Or was "disinflation not deflation" talking about a longer time period than what finster's chart showed?

Interesting times indeed.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

+2 under rated. We've become the Neobolsheviks some time ago.

Still kinda funny how they never mention that when they report that an agency of the Chinese government is buying stakes in US companies. They're just "diversifying" from bonds into "stocks". Sounds like motherhood and apple pie that way, huh?

[Tet]

Re: Bernanke: Talks the Dove, Acts the Hawk

And we thought government ownership of the means of production died with communism ...

+2 under rated. We've become the Neobolsheviks some time ago.

[Finster]

Re: Bernanke: Talks the Dove, Acts the Hawk

After a historical 27 year bull market the dumb money (governments) decide that stocks are the place to be instead of staying in safe Treasury instruments.

And we thought government ownership of the means of production died with communism ...