Thursday, September 20, 2007

Well, this hole's pretty deep, but if we keep digging, I'm sure we'll get out eventually.

We had an economy built on a housing bubble set to deflate. This brings us to about 2001. But, the Administration reached out for criminal, nonsensical and deceitful ways to keep a rosy glow about the economy's cheeks. So, it reduced what regulations it could -- letting securitization take hold -- stopped enforcing what regulations it did have -- allowing liar loans and the like -- and signalled to mortgage lenders that interest only loans with balloon payments and 125 % mortgages would be totally OK with them.

So, housing prices continued to run away, and if the balloon payments had been more than five years, they would have run further. I can only hope that the desire here is to create a permanent depression with a persistent underclass that are willing to sell their bodies to the government, as the Pentagon has forecasted a massive alien invasion and we need a cyborg army to combat it. That's the only charitable reading I can see.

The houses aren't increasing in underlying value. People will just pay as much as they can borrow. Say you, I and a guy we don't like are on an airplane that's going down, and there are two parachutes -- as a quick tip, the important thing is to watch the lines, and keep them from getting tangled. I'm not telling him that. So, they retail for about $450, but they're in a vending machine run by eBay. We have to bid for them. So, we will be on the phone with our banks, financial advisors and accountants trying to put together a package that's larger than he can. I would totally loan you another $500,000, but I have kids in school (hypothetically.) Houses are more or less the same thing. If we used the cash in our pockets, I might win with $12.35 and a tenth of an ounce of lint. But, the more money he's lent, the more money I'll borrow.
A critical issue is whether Fannie Mae and Freddie Mac, government-sponsored enterprises, should be allowed to purchase mortgages above the current $417,000 conforming loan limit.... This issue is crucial because the market for jumbo mortgages has seized up, and a lack of funding for these more expensive loans could have a major impact on housing values in large U.S cities. There is strong pressure in Congress to loosen the reins on Fannie and Freddie even more in the current housing downturn.
"There is little question that allowing the GSEs [government-sponsored enterprises] to securitize jumbo mortgages would give a short-term lift," Treasury Secretary Henry Paulson is expected to tell the House Financial Services Committee at a hearing today, according to prepared remarks. He is expected to say, however, that it would be "unreasonable and irresponsible" to expand their businesses without addressing their regulatory problems.... Mr. Bernanke [said] Monday ... that if Congress is inclined to raise the limit it should consider doing so in a way "that makes the change explicitly temporary as well as promptly implemented." Mr. Bernanke stopped short of endorsing the idea.
In another sign of an administration shift, the regulator for Fannie Mae and Freddie Mac, the Office of Federal Housing Enterprise Oversight, agreed to relax restrictions on the mortgage-finance companies' investment holdings. Ofheo's new policy allows ... the companies to add a combined $40 billion in mortgages to their portfolios by the end of March. In making the changes, Ofheo cited recent progress by both companies in repairing internal controls, though it pointed out that neither company had returned to timely filing of financial statements from past accounting scandals.

Fannie Mae called on the regulator to allow bigger increases. "We still believe the more effective response, given the extent of the market disruption, would be to raise our portfolio cap by at least 10%," Fannie Mae spokesman Brian Faith said.

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