Who said the housing bubble has popped?

[gnk]

How can this possibly not end badly... very badly?



http://seekingalpha.com/article/2107...5-trillion-bet

From the article:

The FASB's new accounting rules 166 and 167 on the use of off-balance sheet accounting for securitized debt issues took effect at the beginning of 2010 for financial institutions with a calendar year fiscal year. From a data user's perspective, earlier this year, they were reflected in changes to commercial bank balance sheet data, and last week, with the release of the Q1 Flow-of-Funds data, we saw their impact more broadly on banks, GSEs and the special purpose vehicles (SPVs) these rulings were intended to reform.

It has been routine practice for issuers of securitized debt to "spin" the specific loans and the securities issues off the institutions' balance sheets to a subsidiary set up for the express purpose, an SPV. As FASB's notice explains, this SPV procedure is helpful for financing a narrowly defined project without putting an entire firm at risk.

However, the original intention of the SPVs was not to distort the institution's underlying risk profile over a protracted period, which had in fact been happening, as investors found to their dismay during the recent financial crisis. These new rules basically cause the securitized debt issuers to move assets and associated securities liabilities back to their balance sheets.

The chart (Editor's Note: see above ) shows the dramatic impact of the rule changes on the biggest item.

First, in the mortgage sector, 1-4 family mortgages that are held at "agency- and GSE-backed mortgage pools" plunged from $5.27 trillion at the end of 2009 to just $983 billion on March 31. By contrast, the direct mortgage holdings of the agencies themselves surged from $438 billion at year-end to $4.75 trillion on March 31."

My question: Does the government have a plan, or is this all ad hoc, extend and pretend and hope for the best?

[FRED]

Re: Who said the housing bubble has popped?

How can this possibly not end badly... very badly?



http://seekingalpha.com/article/2107...5-trillion-bet


From the article:

My question: Does the government have a plan, or is this all ad hoc, extend and pretend and hope for the best?

Chart shows the exact phenomenon that we predicted in 2006 as an outcome of the collapse of the housing bubble financed with asset-backed securities: the simultaneous entry of 1.2 trillion of asset-backed securities onto the Fed's balance sheet as deposits and as liabilities.

This chart:

Is nothing more than these data graphed over time:

The next step is for the technical insolvency of the Fed to begin to be priced in to the dollar.

[gnk]

Re: Who said the housing bubble has popped?

Thanks for the comment Fred. I thought of iTulip when I saw this article. The amounts still amaze me.

So the Fed and Fnma and Fhmlc get loaded up with mortgages to maintain values, keep interest rates low, and maintain the functioning of the mortgage market.

I agree with your conclusion that this will reflect on the dollar. But how do you see the endgame playing out? What will happen to these gigantic pools of loans that FNMA and FHLMC have? What will the gov't do with these GSEs? How much longer can they take these debts on?

I re-read EJ's recent interview - particularly on the Fed's techincal insolvency. EJ mentions the Fed, but not the GSEs. Alex J responded with a possible partial default that affects foreign creditors. My opinion is that the housing market is still about to implode further. The sovereign debt is one thing, but the domestic home mortgage market will never get off life support and function as it used to - not at current valuations and interest rates.

I just don't see the government realistically propping up this market for much longer. The GSE's loan holdings make the Fed's balance sheet look amateurish - just last quarter alone. I would assume that the Fed has the worst quality, but I'm not too sure the GSEs don't have their share of dogs.

[don]

Re: Who said the housing bubble has popped?

Adding To The Pile

Government mortgage financiers Fannie Mae and Freddie Mac announced today that they would provide mortgage payment relief to homeowners with problem drywall.


Fannie Mae, which said the funky drywall is covered under the company’s “Unusual Hardships” policy, will forebear payments for up to six months and has instructed loan servicers to minimize the derogatory credit scoring impact associated.


Meanwhile, Freddie Mac said loan servicers may grant forbearances on a case-by-case basis for up to three months or reduce payments for up to six months.
Servicers may also recommend forbearance for up to a full year, based on the borrower’s unique situation.


“Freddie Mac’s goal is to help borrowers cope with these unusual drywall problems by instructing our servicers to give them the full measure of relief available under our policies,” said Freddie Mac Vice President of Loss Mitigation Yvette Gilmore, in a release.


“This will help more borrowers shoulder the unexpected cost of remediation and continue to succeed as long-term homeowners.”


The defective drywall, which was imported in large quantities from China, was used by a number of homebuilders and contractors during the boom and after the Gulf Coast hurricanes in 2005.


It has been linked to a number of health-related problems and has reportedly caused corrosion of electrical wiring, appliances, heating and A/C systems.


http://www.thetruthaboutmortgage.com...oblem-drywall/

[GRG55]

Re: Who said the housing bubble has popped?

Adding To The Pile

Government mortgage financiers Fannie Mae and Freddie Mac announced today that they would provide mortgage payment relief to homeowners with problem drywall.


Fannie Mae, which said the funky drywall is covered under the company’s “Unusual Hardships” policy, will forebear payments for up to six months and has instructed loan servicers to minimize the derogatory credit scoring impact associated.


Meanwhile, Freddie Mac said loan servicers may grant forbearances on a case-by-case basis for up to three months or reduce payments for up to six months.
Servicers may also recommend forbearance for up to a full year, based on the borrower’s unique situation.


“Freddie Mac’s goal is to help borrowers cope with these unusual drywall problems by instructing our servicers to give them the full measure of relief available under our policies,” said Freddie Mac Vice President of Loss Mitigation Yvette Gilmore, in a release.


“This will help more borrowers shoulder the unexpected cost of remediation and continue to succeed as long-term homeowners.”


The defective drywall, which was imported in large quantities from China, was used by a number of homebuilders and contractors during the boom and after the Gulf Coast hurricanes in 2005.


It has been linked to a number of health-related problems and has reportedly caused corrosion of electrical wiring, appliances, heating and A/C systems.


http://www.thetruthaboutmortgage.com...oblem-drywall/

It's okay don. The Chinese manufactured and sold the drywall that created the problem. Now it's the Chinese that are providing [lending] the money to fix it. All is right with the world... :-)

[ASH]

Re: Who said the housing bubble has popped?

Chart shows the exact phenomenon that we predicted in 2006 as an outcome of the collapse of the housing bubble financed with asset-backed securities: the simultaneous entry of 1.2 trillion of asset-backed securities onto the Fed's balance sheet as deposits and as liabilities.

...

The next step is for the technical insolvency of the Fed to begin to be priced in to the dollar.

FRED -- Isn't the chart a slightly different (but related) phenomenon? My understanding is that the GSEs aren't yet on the Fed's balance sheet. Aren't the GSEs presently wards of the US Treasury rather than the Fed?

My understanding is that the Fed monetized $1.25T of MBS and a further $200B of agency debt. But we're talking about the GSEs acknowledging ~$4.75T of MBS on their own balance sheets.

My take is that not only is the Fed's balance sheet garbage, but the GSEs -- backed by the US Treasury -- have even worse balance sheets, separate from the actions of our central bank.

[FRED]

Re: Who said the housing bubble has popped?

FRED -- Isn't the chart a slightly different (but related) phenomenon? My understanding is that the GSEs aren't yet on the Fed's balance sheet. Aren't the GSEs presently wards of the US Treasury rather than the Fed?

My understanding is that the Fed monetized $1.25T of MBS and a further $200B of agency debt. But we're talking about the GSEs acknowledging ~$4.75T of MBS on their own balance sheets.

My take is that not only is the Fed's balance sheet garbage, but the GSEs -- backed by the US Treasury -- have even worse balance sheets, separate from the actions of our central bank.

You are correct, but the principle is the same: double entry bookkeeping. This represents one side of the balance sheet.

[bill]

Re: Who said the housing bubble has popped?

FRED -- Isn't the chart a slightly different (but related) phenomenon? My understanding is that the GSEs aren't yet on the Fed's balance sheet. Aren't the GSEs presently wards of the US Treasury rather than the Fed?

My understanding is that the Fed monetized $1.25T of MBS and a further $200B of agency debt. But we're talking about the GSEs acknowledging ~$4.75T of MBS on their own balance sheets.

My take is that not only is the Fed's balance sheet garbage, but the GSEs -- backed by the US Treasury -- have even worse balance sheets, separate from the actions of our central bank.

Come on now you know who’s going to have the powers to deal with GSEs after Financial Stability Act of 2010 is passed.

http://en.wikipedia.org/wiki/Restori...quidation_Fund

Duties
In the course of pursuing its goal, the Council has several duties enumerated to it - such as collating data (received from affiliated agencies, and optionally from the companies themselves) to assess risks to the financial system, monitor the financial services marketplace, make general regulatory recommendations to affiliated agencies reflecting a broader consensus, and it may also compel the Federal Reserve to assume an oversight position of certain institutions considered to pose a systemic risk.^[1]

[bill]

Re: Who said the housing bubble has popped?

Come on now you know who’s going to have the powers to deal with GSEs after Financial Stability Act of 2010 is passed.

http://en.wikipedia.org/wiki/Restori...quidation_Fund

Amendment to study GSE’s failed.
Estimates north of $500 billion GSE’s loss and not even a study to be conducted in Financial Reform Bill.
Start 00:16:00
Mr. Bachus sums it up.
Start 00:38:45
http://www.c-span.org/Watch/Media/20...gislation.aspx

[gnk]

Re: Who said the housing bubble has popped?

Amendment to study GSE’s failed.
Estimates north of $500 billion GSE’s loss and not even a study to be conducted in Financial Reform Bill.
Start 00:16:00
Mr. Bachus sums it up.
Start 00:38:45
http://www.c-span.org/Watch/Media/20...gislation.aspx

Good find, thanks Bill.

Here's Bill Black on MSNBC w/ Dylan Ratigan giving a good summary. Nothing's changed, the system is still insolvent.

Financial Reform just facilitates extend and pretend and transfer of risk from private sector to public sector. The numbers are getting bigger.

8:10 and on into the clip

http://www.msnbc.msn.com/id/31510813..._show#37908060

[ThePythonicCow]

Re: Who said the housing bubble has popped?

Nothing's changed, the system is still insolvent.

Perhaps it's changed a little -- to become even more insolvent.

And some of the insolvency has moved onto the U.S. Federal Reserve's balance sheet, directly or indirectly. The next Big Bubble, following the U.S. (and other) Mortgage Bubble, is staring us in the face. It's front man are such as Mr.'s Ben Bernanke, Tim Geithner, Barrack Obama, Jamie Dimon, Lloyd Blankfein and Barney Frank.

At some point this has to go through a "phase change". The water has to boil and the frog die or jump. Some of these front men and some of their organizations will draw the short straws and be demonized. New heroes and new "trusted" organizations and new international monetary arrangements will be introduced.

This enormous debt pyramid, beneath a nominally even more enormous derivative pyramid, cannot keep growing. So it shall shrink. The shrinkage will likely be abrupt, given the immense levels of systemic risk present.

Many items of real wealth (fertile land, working mines, factories, labor, infrastructure, ...) have been leveraged 10 or 50 times over. Sometime, not far off, most such items of real wealth will have only one owner with the other claimants losing. It's a giant game of musical chairs, with players numbering many times the chairs. An ugly chapter will be writ in the Book of Human History when the music stops.

Seek to hold debt free items of real wealth in a political jurisdiction that chooses to respect your property rights. Such skills, technology, reputation and business structure as survive the reset and still have value in whatever economy comes out the other side will also be valuable. A functioning crystal ball would be useful here, to know what will hold or gain value after the reset.

Neither a borrower nor a lender be. You're likely to lose either way. We've got a really, really big debt bubble to collapse. So far, we've mostly just been rearranging the deck chairs. The Titanic Ship of Debt hasn't sunk beneath the waves yet, though it is taking on water and has suffered serious structural damage. This ship has been so designed that none of its critical pieces sink until and unless they all do.

There will be life, economic activity and political power after the reset. The dense fog of chaos and propaganda surrounding the moments of greatest crisis will make it difficult to discern what remains however.

One in ten of those holding claim to some leveraged item of real wealth will also make out well. They will be the luckiest or most corrupt or most powerful claimants to that particular item. Unless you have reason to suspect you're very lucky, very corrupt or very powerful, I would not recommend playing that game. If there are any honest political jurisdictions remaining, the winner of a contested chair might actually be the one most deserving, but I wouldn't count on that either.

As a general rule of thumb, kick All the Bums out of office in the next election. More or less all of them have been compromised, and we need some honest political office holders in place to minimize the risk we get sold down the river into Debt Slavery in perpetuity. Of course, many of the challengers are already compromised as well, but our odds are better with them.

[ASH]

Re: Who said the housing bubble has popped?

Come on now you know who's going to have the powers to deal with GSEs after Financial Stability Act of 2010 is passed.

I think the distinction between potentially bad debt on the Fed's balance sheet, and potentially bad debt on the GSEs' balance sheets (backed by the Treasury), is important because the public is more directly on the hook for losses suffered by the GSEs. As a general rule, if my choice is between the Fed printing money to buy bum assets and recapitalize the banks that held them, or the Treasury spending my tax dollars directly to keep the GSEs solvent while they suffer massive losses on the same bum assets, I'll take the printing press.

As for the potential provisions of the Financial Stability Act, an oversight position to wind down or break up institutions that pose a systemic risk isn't the same thing as assuming the liabilities of said institutions. The Fed may eventually be handed the problem of how to dismantle the GSE's, but that's a somewhat different topic.

[vanvaley1]

Re: Who said the housing bubble has popped?

How many reserve currencies in history have experienced hyperinflation? How many have been replaced because of this event? In a modern economy can this be allowed to happen or will a transitional position be worked out to lessen the impact of a diminished hyperinflated reserve currency?

[aaron]

Re: Who said the housing bubble has popped?

I agree.
In truth, for Americans, the more Uncle Ben can monetize without inducing domestic inflation, the better. They got away with 1 or 2 trillion... It cannot hurt to try a bit more printing, no?

[xela]

Re: Who said the housing bubble has popped?

The next step is for the technical insolvency of the Fed to begin to be priced in to the dollar.

One might just say that this has been happening for some time now via gold, and will for some more time (ha!), since this has to be an orderly process.
Gold, at the end of the day, is there to restore a CBs rotten balance sheet, right?