Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Tuesday Feb.17, Inside the Meltdown,
on PBS, Frontline.......
this is a trailer
http://www.pbs.org/wgbh/pages/frontline/meltdown/
On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. “There was literally a pause in that room where the oxygen left,” says Sen. Christopher Dodd (D-Conn.).
FRONTLINE producer Michael Kirk goes behind closed doors in Washington and on Wall Street to investigate how the economy went so bad so fast and why emergency actions by Federal Reserve Chairman Ben Bernanke and Secretary of the Treasury Henry Paulson failed to prevent the worst economic crisis in a generation on Inside the Meltdown, airing Tuesday, Feb. 17, 2009, at 9 P.M. ET on PBS (check local listings).
As the housing bubble burst and trillions of dollars’ worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.
“Rumors are such that they can just plain put you out of business,” Bear Stearns’ former CEO Alan “Ace” Greenberg tells FRONTLINE.
The company’s stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Ben Bernanke acted. “It was clear that this had to be contained. There was no doubt in his mind,” says Bernanke’s colleague economist Mark Gertler.
Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. “He more than anybody else appreciated what would happen if it got out of control,” Gertler explains.
To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns’ questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.
While publicly supportive of the deal, Secretary Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.
Within months, however, Paulson would witness the virtual collapse of the giant mortgage companies Fannie Mae and Freddie Mac and preside over their takeover by the federal government.
The episode sent shockwaves through the economy as confidence in Wall Street began to evaporate. Within days, in September 2008, another investment bank, Lehman Brothers, was on the brink of collapse. Once again, there were calls for Bernanke and Paulson to bail out the Wall Street giant. But Paulson was under intense political pressure from conservative Republicans in Washington to invoke moral hazard and let the company fail.
“You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns,” says Congressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.
Paulson pushed Lehman’s CEO Dick Fuld to find a buyer for his ailing company. But no company would buy Lehman unless the government offered a deal similar to the one Bear Stearns had received. Paulson refused, and Lehman Brothers declared bankruptcy.
FRONTLINE then chronicles the disaster that followed. Within 24 hours, the stock market crashed, and credit markets around the world froze. “We’re no longer talking about mortgages,” says economist Gertler. “We’re talking about car loans, loans to small businesses, commercial paper borrowing by large banks. This is like a disease spreading.”
“I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems,” says former Lehman board member Henry Kaufman.
Paulson was thunderstruck. “This is the utter nightmare of an economic policy-maker,” Nobel Prize-winning economist Paul Krugman tells FRONTLINE. “You may have just made the decision that destroyed the world. Absolutely terrifying moment.”
In response, Paulson and Bernanke would propose—and Congress would eventually pass—a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.
“Many Americans still don’t understand what has happened to the economy,” FRONTLINE producer/director Michael Kirk says. “How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? Those are the questions at the heart of Inside the Meltdown.”
MSGI, bbotcs, Golf Carts ?
http://www.nypost.com/seven/02112009/news/politics/congress_hopping_carts_154496.htm
Knowledge is King,
No not I, can't rmember where I picked it from..
littlefish,
At first I thought it was low, but the 40 billion appears to be what they (FDIC) "have now" and does not include what they have moved.
$15 billion worth of loans and property "left" from failed banks.
"still-to-be-sold" assets from IndyMac
Although the number of banks continue to grow, many are quite small and arrangements are being made to sell as much as possible upon notice of failure.
http://www.fdic.gov/bank/historical/bank/index.html
When someone says,
"the era of big government is over" - -
You should ask, "compared to what?"
http://mwhodges.home.att.net/piechart.htm
Failed Banks Pose a Big Test for Regulators
By ERIC LIPTON
Published: February 13, 2009
WASHINGTON — When regulators took over the First National Bank of Nevada last year, they faced a showdown with the Terrible Herbst, the mustachioed cowboy who boasts of being the “best bad man in the West.”
This was no real gunslinger, but the name and logo of a chain of gas stations and convenience stores in Nevada that feature slot machines next to candy and beer.
The family-owned Herbst chain, auditors at the Federal Deposit Insurance Corporation concluded, did not generate enough sales at its Reno-area gas stations to support the repayment of a loan, leaving auditors with three bad choices: Move to take over those stations and put the government in the gambling business. Cut off any flow of additional loan money. Or sell the loan at a steep loss.
The F.D.I.C. faces tough choices like this every day as it struggles to manage $15 billion worth of loans and property left from failed banks. If still-to-be-sold assets from IndyMac Bancorp of California, whose demise last year was the fourth-largest bank failure, are included, the number jumps to $40 billion.
The F.D.I.C. inherited the collection of loans and property after the failure of 25 banks in 2008, compared to just three in 2007. Thirteen more have failed this year, including four on Friday night, and no one doubts that more are on the way. The F.D.I.C., which insures bank deposits and ultimately has responsibility for liquidating failed banks, is selling hundreds of millions of dollars worth of loans through eBay-like auction sites.
DebtX of Boston and First Financial Network of Oklahoma City, for instance, sell loans at auction to investors who typically pay 5 cents to 85 cents for each dollar of outstanding principal, according to Bliss A, Morris, First Financial’s president. It is unloading hundreds of houses across the country at bargain basement prices. In November, Lula Smith, 86, of Kansas City, Mo., bought a two-bedroom house across the street from her home for $4,000, one-tenth of its value two years ago.
“I am real satisfied with that price, yes sir,” she said, adding that after about $1,000 in additional costs to repair the house, and some new carpet, her son and daughter-in-law will move in. “It was a nice little deal, indeed.”
And — in the most closely watched tactic — the F.D.I.C. is negotiating a series of billion-dollar deals with private equity partners who will take over huge batches of loans in exchange for a chunk of the sale proceeds.
Even as the solutions to the financial crisis are debated in Congress and among economists, the F.D.I.C., one of the agencies that deals most closely with the nation’s banks, has already been transformed.
The rising tide of foreclosed real estate is so overwhelming that the agency, which had shrunk to a relatively tiny 4,800 employees from as many as 15,000 in the last period of bank meltdowns in the 1990s, is in the midst of a military-scale buildup as it undertakes one of the greatest fire sales of all time.
The agency is frantically calling in retirees and holding job fairs, looking to hire as many as 1,500 people. It has rented a high-rise office building in Irvine, Calif., the new headquarters for a West Coast branch of 450 employees who are wrestling with a real estate crisis in one of the hardest-hit regions. It is also budgeted to pay hundreds of millions of dollars for a small army of contractors to augment its staff. “We are trying to be ready for the inevitable,” said Mitchell L. Glassman, director of the F.D.I.C.’s division of resolutions and receiverships.
The budget for that division is increasing to $1 billion this year, from $75 million last year. Nearly $700 million of the increase is set to go to contractors like RSM McGladrey of Minneapolis, which provides temporary workers to help the agency close banks. These workers come at an hourly rate of $50 to $250. It is a high price, but the F.D.I.C contends the cost is much less than it would have to pay to hire permanent staff.
“It was so painful downsizing after the last banking crisis,” James Wigand, deputy director of the F.D.I.C. receivership division, said, referring to the layoffs after the last cycle of bank failures. “We’re really trying to avoid going through that again.”
The blitz by the F.D.I.C. may offer lessons for the Treasury Department, which is separately struggling with an even more monumental challenge: how to help still-operating banks move giant loads of toxic debt off their balance sheets, in the hope that the banks will begin taking risks again and stimulate the economy.
Tuesday, for example, is the deadline for online bids for $108 million in loans left from the default of Freedom Bank of Bradenton, Fla., which DebtX is selling at auction.
Particularly instructive for Treasury may be the partnerships the F.D.I.C. has formed with private equity groups and other profit-seeking investors, who are being given a chance to earn a big return in exchange for their help in managing billions of dollars worth of troubled loans acquired from defunct banks.
Last month, the F.D.I.C formed a partnership with a company called Private National Mortgage Acceptance Company, based in Calabasas, Calif., which paid $43 million to take possession of $560 million in loans left from First National Bank of Nevada. Private National, a company set up last year to profit from the bad-debt market, paid the equivalent of 38 cents on the dollar for the 3,800 loans, which were left after another bank took over First National’s branches and deposits.
The company will try to collect payments from borrowers after renegotiating mortgages, or, if necessary, foreclose on loans and sell the property. Private National said it hoped to make an annual profit of more than 20 percent for its investors.
Despite the small upfront price Private National paid, F.D.I.C. officials said they considered it a good deal. The government will receive, at least initially, 80 percent of any money Private National can generate from the loans.
As a bank teeters, the F.D.I.C. swoops in virtually overnight and shifts as many good loans and deposits as possible to a healthy bank. The F.D.I.C. persuades the healthy bank to accept some of the bad loans by agreeing to take a share of certain future losses.
What is left is a miserable stew of failed real estate projects, vacant land, boarded-up houses and loans to defunct or bankrupt businesses, among other stories of misery from these recessionary times. About 4 percent of the assets from bank closures last year were bad, totaling some $15 billion in loans and property that once belonged to institutions like the Douglass National Bank of Kansas City, Mo., and Sanderson State Bank of Sanderson, Tex.
This is the stuff that no healthy bank wanted to buy, losing propositions, or in the diplomatically bureaucratic language of government, “assets in liquidation.”
The F.D.I.C.’s new workload is bringing back retirees like Gary Halloway, 58, of Spicewood, Tex., who has had assignments in seven states since he returned to work last year as the leader of regulatory SWAT team, moving from one failed bank to another.
“I wake up, I don’t know where I am, much less which time zone,” Mr. Halloway said in Jackson, Ga., last month, where he was working out of a former funeral home as he helped close First Georgia Community Bank.
Next stop: Houston, to work on the failure of Franklin Bank. “Sometimes I am driving on the highway and I see a sign and I even forget what state I am in,” he said.
For the F.D.I.C staff, the hardest part of taking control of failed banks may be deciding which outstanding loans to cut off, even in cases where perhaps a house development is only half built. Ending a loan almost certainly shuts down a project.
In the case of Terrible Herbst and its Reno-area gas stations, officials at the F.D.I.C. considered taking the highly unusual step of applying for a temporary casino license, allowing the agency to operate the gas stations and the electronic games after perhaps foreclosing on the nearly $10 million loan, one official involved in the effort said.
Another option, simply cutting off additional advances of cash from the loan, was ruled out because the business might close, making it nearly impossible to collect any of the outstanding principal.
The resolution of the case turned out to be a windfall for Terrible Herbst. The government put the loan on sale, and who should buy it directly from the government but the Herbst family, at a discount of more than 50 percent.
The government ate the loss, but at least it collected on some of the bad debt, the F.D.I.C. official involved in the deal said.
Executives at Terrible Herbst, who said they never formally refused to pay off the loan in full, were hardly disappointed.
“It worked out just fine,” said Sean Higgins, the company’s general counsel. “At least for Terrible Herbst.”
http://www.nytimes.com/2009/02/14/business/economy/14assets.html?pagewanted=2&th&adxnnl=1&emc=th&adxnnlx=1234609243-AlWTvchzkdJMFHyoXd%20Uow
Mathematicians
MATHEMATICIANS DISCOVER LARGEST NUMBER
PALO ALTO, CA - An international mathematics research team announced today that they had discovered a new integer that surpasses any previously known value "by a totally mindblowing shitload." Project director Yujin Xiao of Stanford University said the theoretical number, dubbed a "stimulus," could lead to breakthroughs in fields as diverse as astrophysics, quantum mechanics, and Chicago asphalt contracting.
"Unlike previous large numbers like the Googleplex or the Bazillionty, the Stimulus has no static numerical definition," said Xiao. "It keeps growing and growing, compounding factorially, eating up all zeros in its path. It moves freely across Cartesian dimensions and has the power to make any other number irrational."
Jean-Luc Brossard, a researcher with the European consortium CERN, said the number is so staggeringly large that it is difficult for even mathematicians to grasp, let alone lay people.
"The number itself is incomprehensible by human minds, and can only be theoretically understood in a fractional parallel universe which we refer to as the DC dimension," said Brossard. "The best way to understand a stimulus is to imagine a dollar sign followed by a packed string of hexidecimal nanodigits, wound into a triple helix, woven into a dodecahedron, and stacked on top of one another. Now imagine you were a black hole on the far edge of the universe, trying to escape the stimulus at 30 times the speed of light. The stimulus would still catch up to you and ram your black hole with such furious, repeated force that it would cause your entire reality itself to collapse."
Xiao said the team discovered the number with the help of an international network of 24 nitrogen-cooled Cray Ultracluster supercomputers, the CERN particle accelerator, and "three pounds of Humboldt County Chronic."
"The exciting news is that with more powerful computers and drugs, we believe we are on the verge of discovering an even larger number, which we refer to as a 'stimulusconferencebill,'" said Xiao. "Speaker Pelosi has already promised us the funding."
U.S. Housing Slump Has ‘Just Begun,’ Says Forecaster Talbott
Review by James Pressley
Feb. 5 (Bloomberg) -- Let’s say you own a $1 million home in Santa Barbara, California.
The house seemed like a steal when you bought it with that adjustable-rate mortgage in 2005. You still love the white beaches and those yachts bobbing up and down in the harbor.
Then you awaken early one morning, troubled that your monthly payments will soon double. You go out to pick up your newspaper and see for-sale signs on five houses on the street. One identical to yours just sold for $500,000.
Are you going to pay the bank $1 million plus interest for your place? John R. Talbott, a former investment banker for Goldman Sachs, poses that hypothetical question in his latest book of financial prophesy, “Contagion.”
His answer: “I don’t think so,” he says. “If I’m right, then this housing decline has only just begun.”
Talbott is an oracle with a track record: His previous books predicted the collapse of both the housing bubble and the tech-stock binge before it. A friend who runs a New York steak house introduces him as Johnny Nostradamus, he says.
What sets him apart from other doomsayers is his relentless emphasis on simple arithmetic. He walks you through the numbers to show how U.S. house prices got so out of kilter with wages, rental prices and replacement values -- the cost of buying a property and building a home. (“Homes in California by 2006 were selling at three to five times what it would cost to build a similar home from scratch,” he writes.)
Five More Years
Talbott’s latest predictions are sobering. The U.S. is only halfway through the total potential decline in housing prices, he says. Home values will continue to deteriorate for four to five years, he forecasts. Adjustable-rate mortgages issued in 2004 and 2005, for example, are only now resetting for the first time, he notes.
Bankers may “try to blame the crisis on poor Americans with bad credit histories, but that is not the real cause of the housing crisis,” he says. “The greatest home-price appreciations and the homes most subject to price readjustment are in America’s wealthiest cities and its glitziest neighborhoods.”
At the end of 2008, a record 19 million U.S. homes stood empty and homeownership sank to an eight-year low as banks seized homes faster than they could sell them, the U.S. Census Bureau said this week. Almost one in six owners with mortgages owed more than their homes were worth, Zillow.com said the same day.
By the time the crash ends, Talbott predicts, homeowners will have lost as much as $10 trillion, with investors and banks worldwide losing almost $2 trillion. And just as the U.S. starts getting over a prolonged recession, the first big wave of baby boomers will retire, depriving the economy of their productivity (and high consumption), he says.
Back to 1997
So how far will the price of your home on the range fall? Citing historical data and trends, Talbott concludes that real prices should return to their average 1997 levels, adjusted for inflation. Why 1997? A 120-year historical graph shows that real home prices in the U.S. stayed relatively flat for 100 years, then began rising in 1981 and surged from 1997 to 2006.
A return to 1997 prices “would get us out of the heady, crazy days from 1997 to 2006 in which banks were lending large amounts of money under poor supervision and aggressive terms.”
How did we get into this mess? Talbott blames everyone from average Americans who caught “the greed bug” to hedge funds and credit-default swaps. The single biggest error, he says, was for U.S. citizens to allow their national politicians to take large campaign contributions from big business and Wall Street -- a theme Kevin Phillips developed in “Bad Money.”
‘No Accident’
“This crisis was no accident,” he says. It began, in Talbot’s view, because the U.S. government was “co-opted” into deregulating the financial industry. Politicians were “paid to deregulate industry,” taking billions of dollars each year in campaign contributions.
His investment advice for this prolonged recession: Hang on to cash and invest in gold or Treasury Inflation-Protected Securities, or TIPS. If he had to invest in stocks, he would put his money in China.
Living in smaller houses with their savings gutted, U.S. baby boomers will face yet another big challenge, Talbott says:
“The toughest job to get in the future will be the elderly person greeting you as you enter the local Wal-Mart.”
“Contagion: The Financial Epidemic That Is Sweeping the Global Economy . . . and How to Protect Yourself From It” is from Wiley (256 pages, $24.95, 15.99 pounds, 19.20 euros).
otcbargains, Rogue,
I had just got of the phone with my oldest son before watching the video.
He told me had gone to pick his youngest up at school yesterday that is on a military facility very near me (1/4 mi.).
After entering through the main gate and a couple of turns towards the school two structures caught his eye. He said his immediate thought was OMG there concentration camps, but then he realized there were no buildings.
He said there were two fenced in areas, each approx. the size of at least a football field maybe larger with razor wire on the top and towers at each corner of both. The surrounding area extending out maybe another hunderd yards or so from the fences had been cleared of all brush and trees.
The base was one of those closed recently (2-3 yrs.?), and the only activity is the Coast Guard air station, Homeland Security which is becoming more active, two schools(which the town utilizes) and a county house of correction(built a few years ago) which is not located any where,s near the fenced in areas.
Makes one wonder......!!!!
Makes one wonder......!!!!
http://en.wikipedia.org/wiki/Otis_Air_National_Guard_Base
Obama Foreclosure-Relief Plan May Guarantee Rewritten Loans
By Alison Vekshin
Feb. 3 (Bloomberg) -- The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.
The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that “working out the details of it is still something that’s ongoing.”
“We need to help more people stay in their homes” through helping mortgage lenders make more loan modifications, James Lockhart, director of the Federal Housing Finance Agency, said in an interview with Bloomberg Television yesterday. “I’m pleased that the new administration is starting to work on that area.”
President Barack Obama’s team is preparing the biggest effort yet to arrest foreclosures, part of a three-pronged attack on the financial crisis that also aims at restarting business and consumer lending and overhauling regulation. As banks dump on the market the properties acquired through borrower defaults, they are contributing to the biggest slide in property values since the Great Depression.
Bailout Plan
Top officials continued their series of meetings yesterday as they examine options for the next phase of the government’s financial-industry bailout. The biggest challenge is finding a way to value banks’ toxic assets so that the government can buy or insure them while providing some limit to taxpayer losses, Dugan said. An announcement on the strategy may come early next week, an administration aide said.
Treasury Secretary Timothy Geithner gathered with Dugan, Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. Geithner and White House economics director Lawrence Summers also met with House Financial Services Committee Chairman Barney Frank.
The proposal to guarantee modified mortgages is a variation of an idea backed by the FDIC. The administration plans to spend as much as $100 billion of the second $350 billion instalment of the Treasury’s financial-bailout fund on home-loan initiatives.
Some 1.5 million foreclosures might be prevented this year in a program that would pay servicers $1,000 to modify a troubled loan by reducing the interest rate, forgiving a portion of the principal or extending the repayment plan, Bair has estimated. The government would then absorb as much as 50 percent of any loss if the rewritten loan defaults again.
Protection for Taxpayer
Dugan said in an interview yesterday in Washington that the approach should include a provision that would delay a government guarantee for a modified mortgage for a set period of time to ensure that the loan is sustainable.
“It is really important that when you have a modified loan that the payment become affordable to the homeowner,” Dugan said. “You wouldn’t want the government to be on the hook for someone who borrowed a lot more in credit-card debt, or what have you, and then couldn’t make their payments.”
Meanwhile, Treasury aides have approached Wall Street firms to gauge their appetite for participating in a so-called aggregator bank designed to remove toxic assets clogging banks’ balance sheets. They are also asking how a pricing model for the investments should be set up, financial-services industry officials said on condition of anonymity.
Compensation Limits
The administration is planning to outline stepped-up executive pay and dividend restrictions for companies that receive “exceptional” government aid later this week, helping to lay the groundwork for further help. Obama last week criticized the payment of Wall Street bonuses while the industry was receiving taxpayer funds as “shameful.”
Larger firms will see bans on severance payments for the top five executives and limits on their bonus pools, along with 50 senior officers, to 60 percent of 2007 level, according to the Treasury. The department also requires that major expenses, like aircraft or conferences in exotic locales, get prior government approval.
Obama yesterday warned that further bank failures are likely. Lenders are “going to have to write down those losses,” he also said in an interview on NBC’s Today show.
Six banks have collapsed already in 2009, and the failures are putting pressure on the FDIC’s deposit-guarantee fund. The agency is seeking power to charge fees to bank holding companies, in legislation to be taken up by the House Financial Services Committee. The bill would also boost the FDIC’s credit line with the Treasury to $100 billion from $30 billion.
‘Stressed’ Homeowners
Obama directed his staff to work with Congress on “smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners,” Summers, who is helping to craft Obama’s strategy, wrote in a Jan. 12 letter to congressional leaders.
Another mortgage approach being considered would have the government provide an incentive for servicers to rewrite loans by sharing the cost of the modification.
Under that proposal, the companies would negotiate with borrowers to cut their monthly payment to represent a smaller proportion of their income, for example 38 percent. The government then would pay the cost of cutting the payment even further, to 31 percent of income.
Bernanke in December said that while such an option might “pose a greater operational burden on the government” than the FDIC plan, it could “leverage” modification efforts now under way.
Obama Foreclosure-Relief Plan May Guarantee Rewritten Loans
By Alison Vekshin
Feb. 3 (Bloomberg) -- The Obama administration is considering government guarantees for home loans modified by their servicers, seeking to stem the record surge of foreclosures that’s hammering U.S. property values.
The proposal, which may also have the taxpayer share in the cost of reducing mortgage payments, is aimed at shielding lenders from default after they loosen loan terms for struggling borrowers. Comptroller of the Currency John Dugan, who regulates national banks, said yesterday that “working out the details of it is still something that’s ongoing.”
“We need to help more people stay in their homes” through helping mortgage lenders make more loan modifications, James Lockhart, director of the Federal Housing Finance Agency, said in an interview with Bloomberg Television yesterday. “I’m pleased that the new administration is starting to work on that area.”
President Barack Obama’s team is preparing the biggest effort yet to arrest foreclosures, part of a three-pronged attack on the financial crisis that also aims at restarting business and consumer lending and overhauling regulation. As banks dump on the market the properties acquired through borrower defaults, they are contributing to the biggest slide in property values since the Great Depression.
Bailout Plan
Top officials continued their series of meetings yesterday as they examine options for the next phase of the government’s financial-industry bailout. The biggest challenge is finding a way to value banks’ toxic assets so that the government can buy or insure them while providing some limit to taxpayer losses, Dugan said. An announcement on the strategy may come early next week, an administration aide said.
Treasury Secretary Timothy Geithner gathered with Dugan, Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair. Geithner and White House economics director Lawrence Summers also met with House Financial Services Committee Chairman Barney Frank.
The proposal to guarantee modified mortgages is a variation of an idea backed by the FDIC. The administration plans to spend as much as $100 billion of the second $350 billion instalment of the Treasury’s financial-bailout fund on home-loan initiatives.
Some 1.5 million foreclosures might be prevented this year in a program that would pay servicers $1,000 to modify a troubled loan by reducing the interest rate, forgiving a portion of the principal or extending the repayment plan, Bair has estimated. The government would then absorb as much as 50 percent of any loss if the rewritten loan defaults again.
Protection for Taxpayer
Dugan said in an interview yesterday in Washington that the approach should include a provision that would delay a government guarantee for a modified mortgage for a set period of time to ensure that the loan is sustainable.
“It is really important that when you have a modified loan that the payment become affordable to the homeowner,” Dugan said. “You wouldn’t want the government to be on the hook for someone who borrowed a lot more in credit-card debt, or what have you, and then couldn’t make their payments.”
Meanwhile, Treasury aides have approached Wall Street firms to gauge their appetite for participating in a so-called aggregator bank designed to remove toxic assets clogging banks’ balance sheets. They are also asking how a pricing model for the investments should be set up, financial-services industry officials said on condition of anonymity.
Compensation Limits
The administration is planning to outline stepped-up executive pay and dividend restrictions for companies that receive “exceptional” government aid later this week, helping to lay the groundwork for further help. Obama last week criticized the payment of Wall Street bonuses while the industry was receiving taxpayer funds as “shameful.”
Larger firms will see bans on severance payments for the top five executives and limits on their bonus pools, along with 50 senior officers, to 60 percent of 2007 level, according to the Treasury. The department also requires that major expenses, like aircraft or conferences in exotic locales, get prior government approval.
Obama yesterday warned that further bank failures are likely. Lenders are “going to have to write down those losses,” he also said in an interview on NBC’s Today show.
Six banks have collapsed already in 2009, and the failures are putting pressure on the FDIC’s deposit-guarantee fund. The agency is seeking power to charge fees to bank holding companies, in legislation to be taken up by the House Financial Services Committee. The bill would also boost the FDIC’s credit line with the Treasury to $100 billion from $30 billion.
‘Stressed’ Homeowners
Obama directed his staff to work with Congress on “smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners,” Summers, who is helping to craft Obama’s strategy, wrote in a Jan. 12 letter to congressional leaders.
Another mortgage approach being considered would have the government provide an incentive for servicers to rewrite loans by sharing the cost of the modification.
Under that proposal, the companies would negotiate with borrowers to cut their monthly payment to represent a smaller proportion of their income, for example 38 percent. The government then would pay the cost of cutting the payment even further, to 31 percent of income.
Bernanke in December said that while such an option might “pose a greater operational burden on the government” than the FDIC plan, it could “leverage” modification efforts now under way.
Financials gaining in Pre on this,
Citigroup to use $36.5 billion for lending: report
By Barbara Kollmeyer
Last update: 6:00 a.m. EST Feb. 3, 2009
MADRID (MarketWatch) -- Citigroup Inc., plans to use $36.5 billion for consumer and company lending and to fund U.S. mortgage loans from the $45 billion it got from the government in bailout funds last year, according to Bloomberg, which obtained a copy of a report the company is expected to issue on Tuesday.
The bank will use $25.7 billion for mortgages,
$1 billion for student loans,
$5.8 billion for credit card lending
and $1.5 billion for corporate loans,
the report said, according to Bloomberg. "The government, on behalf of the American taxpayer, has invested in Citigroup," Chief Executive Officer Vikram Pandit reportedly said in a statement.
"We have an obligation to repay in ways that will go well beyond the $3.41 billion Citigroup will pay the government each year in dividends associated with its TARP (Troubled Asset Relief Program) investment, and a separate loss-sharing agreement." Citigroup reportedly said the TARP funds won't be used for compensation, bonuses, dividend payments, lobbying or government-related actions or activities related to marketing, advertising or corporate sponsorship.
Citigroup to use $36.5 billion for lending: report
By Barbara Kollmeyer
Last update: 6:00 a.m. EST Feb. 3, 2009
MADRID (MarketWatch) -- Citigroup Inc., plans to use $36.5 billion for consumer and company lending and to fund U.S. mortgage loans from the $45 billion it got from the government in bailout funds last year, according to Bloomberg, which obtained a copy of a report the company is expected to issue on Tuesday. The bank will use $25.7 billion for mortgages, $1 billion for student loans, $5.8 billion for credit card lending and $1.5 billion for corporate loans, the report said, according to Bloomberg. "The government, on behalf of the American taxpayer, has invested in Citigroup," Chief Executive Officer Vikram Pandit reportedly said in a statement. "We have an obligation to repay in ways that will go well beyond the $3.41 billion Citigroup will pay the government each year in dividends associated with its TARP (Troubled Asset Relief Program) investment, and a separate loss-sharing agreement." Citigroup reportedly said the TARP funds won't be used for compensation, bonuses, dividend payments, lobbying or government-related actions or activities related to marketing, advertising or corporate sponsorship.
Freddie Mac to let residents rent homes after foreclosure
By Stephanie Armour, USA TODAY
Updated 2d 6h ago
Freddie Mac on Friday plans to announce a first-of-a-kind plan that lets homeowners and tenants temporarily stay in homes in foreclosure by renting them back, an effort to stop many of the sudden evictions that have come along with the housing crisis.
The program will let thousands of qualified former homeowners, as well as families renting from landlords, enter into a monthly lease on their homes after they have been acquired by Freddie Mac through foreclosure.
Freddie Mac officials expect the program to help about 8,600 families in 2009.
The program gives homeowners and renters more time to find a new place to live and also keeps homes occupied. That's a plus for neighborhoods where numerous foreclosures have led to empty, unmaintained, vandalized properties.
"For tenants, it's a big difference," says Mark Zandi, an economist with Moody's Economy.com. "If this acts as a benchmark for other mortgage servicers, it would be a very positive development. It's a win-win. "
Details of the program:
•Leases will be on a month-to-month basis.
•Tenants and homeowners will only have to pay market-value or existing lease rents, not the mortgage payments. Freddie Mac will hire a property management company to determine that amount.
•Tenants and homeowners must be able to show proof that they have enough income to pay the monthly rental amount.
•Freddie Mac will also explore loan-modification options that might be available for some borrowers.
The Freddie Mac initiative comes as the government is stepping up efforts to stem a wave of foreclosures that caught more than 2.3 million homeowners last year, up 81% from 2007.
The Obama administration has pledged to spend up to $100 billion to help people avoid losing their homes.
In mid-December, Fannie Mae also rolled out a policy that allows renters in a property that is being foreclosed on to rent that home rather than be evicted. It does not include homeowners. Up to 10,000 families are expected to be helped by Fannie's rental policy; Freddie expects about a 30% acceptance rate.
The Federal Reserve this week announced a policy to help some distressed homeowners avoid foreclosure. The Fed said it would work with companies servicing mortgages now owned by the Fed to modify qualifying mortgages of homeowners that are 60 days or more delinquent on payments.
http://www.usatoday.com/money/economy/housing/2009-01-29-freddie-mac-rent-foreclosure_N.htm
“Bad Banks” for Beginners
For a complete list of Beginners articles, see the Financial Crisis for Beginners page.
http://baselinescenario.com/2009/01/21/bad-bank-aggregator-bank-beginners/
What is a bad bank? . . . No, I don’t mean that kind of bad bank, with which we are all much too familiar. I mean the kind of “bad bank” that is being discussed as a possible solution to the problems in our banking sector.
In this sense, a bad bank is a bank that holds bad, or “toxic” assets, allowing some other bank to get rid of these assets and thereby become a “good bank.”
To understand this, you need to understand what a bank balance sheet looks like. I’ve covered this elsewhere, but for now a simple example should do. Let’s say that the Bank of Middle-Earth has $105 in assets (mortgages, commercial loans, cash, etc.), $95 in liabilities (deposit accounts, bonds issued, other financing), and therefore $10 in capital. The assets are things that have value and theoretically could be sold to raise cash; the liabilities are promises to pay money to other people; and the capital, or the difference between the two, is therefore the net amount of value that is “owned” by the common shareholders. Next assume that the assets fall into two categories: there are $60 of “good” assets, such as loans that are still worth what they were when they were made (no defaults and no increased probability of default) and $45 of “bad” assets, such as loans that are delinquent, or mortgage-backed securities where the underlying loans are delinquent, etc. Say the bank takes a $5 writedown on these bad assets, so it now counts them as $40 of assets, but if it actually had to sell them right now they would only sell for $20 because no one wants to buy them. (When a bank has to take a writedown and for how much is a complicated subject; suffice it to say that in many cases banks have assets on their balance sheet at values that everyone knows could not be realized in the current market, and this is completely legal.)
Right now the bank balance sheet has $100 in assets, $95 in liabilities, and $5 in capital, so it is still solvent. However, everyone looking at the bank thinks that those $40 in bad assets are really only worth $20, and is afraid that the bank may need to take another $20 writedown in the future. So no one wants to buy the stock and, more importantly, no one wants to lend it money, because a $20 writedown would make the bank insolvent, it could go bankrupt, stockholders would get nothing, and creditors (lenders to the bank) would not get all their money back. Because no one wants to lend it money, the bank itself hoards cash and doesn’t lend to people who need money.
Although not necessarily to scale, this is roughly what the banking systems of the U.S. and several other major economies look like right now.
How does a bad bank solve this problem? There are two basic models: one in which each sick bank splits into a good bank and a bad bank, the other in which the government creates one big bad bank and multiple sick banks unload their toxic assets onto it.
Bank mitosis
In the first model, the Bank of Middle-Earth splits into two: a Bank of Gandalf and a Bank of Sauron. The Bank of Gandalf gets the $60 in good assets, and the Bank of Sauron gets the $40 in bad assets (that may only be worth $20). The Bank of Sauron will probably fail. But the Bank of Gandalf no longer has any bad assets, so people will invest in it and lend money to it, and it will start lending again.
This model has one tricky problem, though: How do you allocate the liabilities of the old bank between the two new banks? Luigi Zingales says the simplest solution is to do it on a proportional basis. Because the Bank of Gandalf gets 60% of the assets, it gets 60% of the liabilities. So if the Bank of Middle-Earth owed someone $1, now the Bank of Gandalf owes him 60 cents and the Bank of Sauron owes him 40 cents. Now the Bank of Gandalf has $60 in assets, $57 in liabilities (60% of $95), and $3 in capital; the Bank of Sauron has $40 in bad assets (that are really only worth $20) and $38 in liabilities. Instead of one sick bank with $100 in assets that isn’t doing any lending, you have a healthy bank with $60 of assets that is lending, and what Zingales calls a “closed-end fund holding the toxic assets” whose creditors will probably get some but not all of their money back. The tricky part is that this is a good deal for shareholders in the Bank of Middle-Earth and a bad deal for creditors to the Bank of Middle-Earth, and so it’s illegal for banks to divide up the liabilities like this. Zingales recommends legislation to make it possible, but I suspect that even were Congress to pass such a bill, there would still be lots of lawsuits challenging its constitutionality.
I started with Zingales’s version of bank mitosis because it illustrates the principle neatly, but the legal complication makes it difficult to implement in practice. Another way to divide one back into two is to find separate funding for the Bank of Sauron. This is what UBS did in November, with the support of the Swiss government. UBS had $60 billion in bad assets that it unloaded onto the new bad bank. To pay for those bad assets, however, the bad bank needed $60 billion. How did it get it? First UBS raised $6 billion in new capital by selling shares to the Swiss government. Then it invested those $6 billion in the bad bank - that became the bad bank’s capital. Then the Swiss central bank loaned the bad bank $54 billion. (There is little chance that any private-sector entity would lend a self-confessed bad bank money, but this was in the public interest.) Because shareholders get wiped out first, that effectively means that UBS was taking the first $6 billion in losses, and any losses after that would be borne by the Swiss government. This constitutes a subsidy by the Swiss government to UBS, but one that was justified by the need to stabilize the financial system. At the end of the transaction, UBS had diluted its shareholders by 9% (because of the new shares sold to the government) and had a $6 billion investment in the bad bank it was likely to lose, but it had cleaned its balance sheet of $60 billion in toxic assets.
One issue in this version is how to value the assets that are being sold to the bad bank. If they are sold at market value ($20 in the Middle-Earth example), then the parent bank has to take a writedown immediately, which arguably defeats the purpose of the whole transaction (because that could render the parent bank immediately insolvent). In that case, the parent bank would need to be recapitalized (presumably by the government) immediately, and the “bad bank” would actually be not that bad, since it is holding assets it bought on the cheap. If they are sold at the value at which they are carried on the parent bank’s balance sheet, then the bad bank is essentially making a stupid purchase (overpaying for securities it expects to decline in value) for the public good. In the UBS case, forcing UBS to provide the $6 billion in capital was a way of forcing UBS to suffer at least some of the loss that the bad bank was expected to incur.
Big Bad Bank
The second model, which has been proposed by Sheila Bair, Ben Bernanke, and others, is the “aggregator” bank. Instead of splitting every sick back into a good bank and a bad bank, in this model the government creates one Big Bad Bank, which then takes bad assets off the balance sheets of many banks. (This doesn’t necessarily have to be created by the government; the Master Liquidity Enhancement Conduit - bonus points for anyone who remembers what it was for - was supposed to be funded by private-sector banks. But in today’s market conditions, the government is the only plausible solution.) In this plan, the capital for the Big Bad Bank is provided by the Treasury Department (perhaps out of TARP), and the loan comes from the Federal Reserve, which has virtually unlimited powers to lend money in a financial emergency. Once this Big Bad Bank is set up and funded, it will buy toxic assets from regular banks, which will hopefully remove the uncertainty that has hampered their operations.
Yes, the Big Bad Bank is similar in concept to the original TARP proposal, and it faces the same central question: what price will it pay for the assets (the issue discussed two paragraphs above)? If it pays market value, it could force the banks into immediate insolvency, so recapitalization would have to be part of the same transaction. If it pays current book value (the value on the banks’ balance sheets), it will be making a huge gift to the banks’ shareholders. There has been talk of forcing participating banks to take equity in the Big Bad Bank (as in the UBS deal), presumably to make them shoulder some of the overpayment. In any case, the money the government puts in, up to the market value of the assets purchased, is a reasonable investment for the taxpayer; but there will need to be additional money, either to recapitalize the remaining banks (which, if done at market prices, would lead to government majority ownership), or to overpay for their assets. Pick one.
One last issue: Creating a bad bank works nicely if you can draw a clear line between the good assets and the bad assets. My theoretical Bank of Gandalf above only has good assets, so there are no doubts about its health. But what if you can’t? This crisis started in subprime mortgage-backed securities, and it’s pretty clear that things like second-order CDOs based on subprime debt are deeply troubled. But as the recession deepens, all sorts of asset-backed securities - such as those backed by credit card debt or auto loans - start losing value, and then even simple loan portfolios lose value as ordinary households and businesses that were creditworthy just a few years ago go into default. Put another way, if it were possible to neatly separate off the bad assets, then the second Citigroup bailout would have worked, since that provided a government guarantee for $300 billion in assets. Yet Citigroup’s stock price, even after Wednesday’s huge rally (up 31%) is still below the price on November 21, the last trading day before that bailout was announced. Clearly no one believes that Citigroup had only $300 billion in bad assets.
The goal of a bad bank is to restore confidence in the good bank, and it’s not clear how much of the parent bank’s assets have to be jettisoned before anyone will have confidence that only good assets are left. One potential problem with the Big Bad Bank is that banks could be tempted to underplay their problems, sell only some of their bad assets, hope the rest are all good, take the bump in their stock price . . . and then show up two quarters later with more bad assets. If investors suspect that is going on, and that the banks are still holding onto bad assets, then the scheme will fail. The solution to that problem is to overpay for the assets, which gives banks the incentive to dump all of them onto the Big Bad Bank . . . and then we are back where we started.
Update: Citigroup’s division into a good bank (Citicorp) and a bad bank (Citi Holdings, which includes the $300 billion in assets guaranteed by you and me) is more symbolic than anything else at this point, because they are still just divisions of one company. So if Citi Holdings goes broke, the creditors can demand money from Citicorp, which defeats the purpose of a good/bad separation. The goal here was more to communicate what the bank’s long-term strategy is (the hope is to either sell off or run off everything in Citi Holdings) in hopes of convincing shareholders that the management knows what they are doing.
Next TARP Money Tracked on Web
February 01, 2009 11:58 AM
During our powerhouse economic panel today, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee promised the next installment of TARP money would be trackable on the Web.
Frank also said there will be rules in the next TARP money to force banks to lend to credit-seekers.
"It is a mistake to assume that the Obama administration hasn't learned from the mistakes of the Bush administration." Frank said. "I agree that Secretary Paulson, whom I generally admired, made a mistake in not pushing them to do more lending. I think you're going to see the Obama administration, having learned from that, push for much more lending. There are going to be some real rules in there."
Google CEO Eric Schmidt argued the administration should publish where the money is being spend on the Web.
"They are going to be," Frank pledged.
"We're going to do that. In fact, the new inspector general, who was set up -- we've set up a special inspector general. Confirmation was delayed in the Senate. And Mr. Barofsky is now about to demand of every recipient of
TARP, past and future, that they do exactly what you say and that we will publish on our Web site. So there was -- I agree. It was not -- I think it was better to have had it than not, but it is going to be done," Frank said.
--George Stephanopoulos
forget the video you have to sit through 5 minutes of commercials!!!!!
http://blogs.abcnews.com/george/2009/02/frank-next-tarp.html#comments
Will $40 oil be the downfall or Chavez, Ahmadinejad and others with similar agendas,
13 second French introduction,
http://www.dailymotion.com/video/x87io5_tonton-soros-explique-la-crise-cest_webcam
Interactive, How some of the major spending will be shared among the states, according to estimates for the current stimulus bill proposed by House Democratic leaders.
Mouse over a state for details, or sort the rows in the chart below. --Updated 01/27/09
http://online.wsj.com/public/resources/documents/info-STIMULUS0109.html
out at a wash,
not a good idea and I need my fingers
C..........3.94
BAC......6.81
WFC.......19.48
took a shot again in pre-mkt,
C..........3.90
BAC......6.90
WFC.......19.16
Penny Lane,
I just traded C, BAC, and WFC
out WFC @ 20.38 +27%, January 29, 2009 8:42:22 AM
out of last nights buys,
out of C @ 4.20 from 3.50
out of BAC @ 7.49 from 6.44
still holdin WFC from 16.02
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=35165446
http://investorshub.advfn.com/boards/board.aspx?board_id=2227
Penny Lane
Maybe they couldn't because of the antiquated computers at the White House
http://www.washingtonpost.com/wp-dyn/content/article/2009/01/21/AR2009012104249.html
bbotcs, Recovery/Reinvestment Act, and cost estimate
**Note the affects on SSI on page 2 of the cost estimate.
This is what was passed on to the Senate yesterday, changes maybe to come?
Congressional Budget Office Cost Estimate
January 26, 2009
American Recovery and Reinvestment Act of 2009
http://republicans.appropriations.house.gov/_files/12609CBOSummary.pdf
111th Congress
1st session
H.R.1.....American Recovery and Reinvestment Act of 2009
http://www.rules.house.gov/111/LegText/111_hr1_text.pdf
Nickel Supply Cuts "Rapid And Significant" - Xstrata
Last update: 1/29/2009 10:48:44 AM
(Adds quotes from Xstrata and details)
LONDON (Dow Jones)--The nickel industry has made "particularly rapid and significant" efforts to cut production in response to deteriorating demand with around 350,000 metric tons of refined output being taken out of the market in 2009, Anglo-Swiss miner Xstrata PLC (XTA.LN) said Thursday.
This represents approximately 21% of the previously expected level of global supply in 2009, and is expected to stabilize the market this year, Xstrata noted.
In addition, growth projects and exploration expenditure continue to be canceled or deferred, Xstrata said, and this is introducing significant constraints to future supply.
"Nickel production from Chinese pig iron has now largely ceased, due to the impact of low metal prices on these high-cost producers," Xstrata said.
"Supply from Chinese nickel pig iron and other high-cost facilities is unlikely to resume given the prevailing economic climate and lack of visibility into near-term market conditions."
But while the supply side response continues to gain momentum, production curtailments in the fourth quarter were not sufficient to fully mitigate the impact of the sharp fall in demand, the company added.
However, looking further ahead, Xstrata said the outlook was expected to improve as global demand recovers and the physical availability of nickel tightens.
1st 1/4 Layoffs: Selection of Job Cuts by Major Companies
Last updated Jan. 29, 2009
http://blogs.wsj.com/economics/2009/01/08/first-quarter-layoffs-selection-of-job-cuts-by-major-companies/
4th 1/4 Layoffs: Selection of Job Cuts by Major Companies
http://blogs.wsj.com/economics/2008/12/04/fourth-quarter-layoffs-selection-of-job-cuts-by-major-companies/
MSGI,
Here in Mass. it is taking folks two+ weeks to be able to get through (phone) just to file their initial claim.
"But Edward Malmborg, director of the state's Division of Unemployment Assistance, told The Standard-Times that the 190 agents stationed at call centers across the state were overwhelmed, what with Massachusetts unemployment at 5.9 percent."
Mass......
http://www.southcoasttoday.com/apps/pbcs.dll/article?AID=/20081223/NEWS/812230342
New York....
http://abclocal.go.com/wabc/story?section=news/local&id=6587830
out WFC @ 20.38 +27%, looks like the overall markets may be headed back down some.
out of last nights buys,
out of C @ 4.20 from 3.50
out of BAC @ 7.49 from 6.44
still holdin WFC from 16.02
http://investorshub.advfn.com/boards/board.aspx?board_id=2227
otcbargains, but it does attract more desired attention to both men, could it be planned?
I think I will hold WFC overnight, just set a new high for the day...... although maybe I should cut and run!!!!!!
out of BAC @ 7.49 +15%
out of C @ 4.20 +20%, holding the other 2 for now.
roguedolphin,
I don't follow Schiff for what he does or does not do for his clients. I read his stuff and others from both sides of the fence in hopes of gaining bits of pieces to the never ending puzzle.
lentinman, I haven't missed a post here and
very much appreciate your work
another of your prior.....(around mid july of 07 ?)
There are always reasons why housing begins to decline (crash). Interest rates are potentially a big reason. On that score, housing has a long ways to go because interest rates are likely to continue to climb.
Here are all of the peaks and valleys of housing starts since 1959.
Comments continue below the table.
Mo/Yr.....Millions...months drop...%drop D
2-64.........1.82
10-66........0.843........32..........-54%
----------------------
1-69.........1.769
1-70.........1.085........12..........-39%
--------------------
1-73.........2.481
1-75.........0.904........24..........-64%
-------------------
11-78........2.094
5-80.........0.927........18..........-56%
----------------------
10-80........1.523
11-81........0.837........13..........-45%
---------------------
1-86.........1.972
1-88.........1.271........12..........-36%
---------------------
1-90.........1.551
1-91.........0.798........12..........-49%
--------------------
1-06.........2.292
4-07.........1.528........15..........-33% (SO FAR)
5-07.........1.474.........16.........-35.7% revised to 1.434...-37.4%6-07.........1.467
The average for 7 peaks and valleys prior to the present one are 15.9 months and -49%.
Based on that, you might come up with numbers similar to Beigle's - 1.100M in 5 more months. However, I don't think so. Again, this bubble is overwhelmingly greater than in the past and here is the biggie. INVENTORIES are at record highs. Ultimately, it is inventories that have to be worked off BEFORE housing starts can recover. And, those inventories don't even include the (overwhelming) record number of second and third homes that people have - but have yet to see a need to unload. Wait until the next recession and see how many millions of houses are SUDDENLY available!
posted by lentinman
Fed moves to help distressed homeowners
"more than 860,000 properties nationwide were actually repossessed by lenders last year"
new housing starts high 1-06..2.292 mil (taken from a prior lentinman post)
860,000 foreclosures represents 37+% of the starts back
in 1 of 06
By JEANNINE AVERSA, AP Economics Writer Jeannine Aversa, Ap Economics Writer – 1 hr 25 mins ago
WASHINGTON – With foreclosures spiking, the Federal Reserve is taking steps to try to keep some distressed borrowers in their homes.
Under the program, the Fed has a number of options to provide relief, including lowering the amount the homeowner owes on the mortgage, reducing the interest rate or lengthening the term of the loan.
It's unclear how many homeowners would benefit. However, the relief plan would apply to the billions of dollars of mortgage assets the Fed is holding on its books because of last year's bailouts of Bear Stearns and insurer American International Group.
In general, a borrower must be at least 60 days delinquent to qualify for help, although the Fed has leeway to make some exceptions. A 2008 law that set up the $700 billion bailout fund instructed the Fed to take such foreclosure relief action.
"The goal of the policy is to avoid preventable foreclosures on residential mortgage assets that are held, owned or controlled by a Federal Reserve Bank," Fed Chairman Ben Bernanke wrote in a letter Tuesday to Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.
Bernanke has repeatedly urged Congress and — more recently — the administration of President Barack Obama to ramp up efforts to curb home foreclosures, which are aggravating the economy's problems. The new administration is examining ways to stem foreclosures.
Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, welcomed the Fed's program and called it "an important advance."
The Fed's Bear Stearns' portfolio is valued at $27 billion, although the central bank doesn't say how much of that is in home mortgages. The Fed's AIG assets include one portfolio valued at nearly $20 billion of residential mortgage-backed securities and a second portfolio valued at nearly $27 billion of collateralized debt obligations, which are complex financial instruments that combine various slices of debt.
More than 2.3 million homeowners faced foreclosure proceedings last year, a whopping 81 percent increase from 2007. And more than 860,000 properties nationwide were actually repossessed by lenders last year, more than double the 2007 level, according to RealtyTrac, a California-based foreclosure listing firm. Nevada, Florida, Arizona and California had the highest foreclosure rates last year.
Housing, credit and financial crises — the worst since the 1930s_ have plunged the country into a recession, now in its second year. So far, a slew of radical government programs have failed to remedy the problems.
bbotcs,
you may very well be right, time will tell how it is all put together. For now I'm just swing trading .....I'll probably be out of them thursday, no later than friday.
Some may find this interesting,
Stock-Surfing the Tsunami
by Joe Hagan
January 25, 2009
(this story was first published at nymag.com)
http://leavittbrothers.com/stocks-options-futures-trading-reports/2009/01/stock-surfing-the-tsunami.cfm
Ordinary investors may flee the market’s dizzying ups and downs, but Peter Milman and his kind hang on tight while riding the giant waves of uncertainty. There’s nothing more exhilarating than to catch the perfect surge.
The screens are crawling with red and green. But mostly red.
“What is this?”
The stock market is headed down again, as it was yesterday and the day before that. A 32-year-old trader named Peter Milman sits slumped under fluorescent lights in an open-air trading office on Madison Avenue, surrounded by men just like him: rows of traders in jeans and T-shirts and hoodies, faces slack, staring at banks of monitors that jump with charts and graphs and gauges, the only sound the tapping of computer keys—and the occasional expletive.
“Fuck me!”
On this day in mid-November, President Bush is in Manhattan trying to reassure investors, but it doesn’t seem to matter. Treasury Secretary Hank Paulson’s announcement that he’ll scrap his original $700 billion bailout plan for financial institutions has sent the market into a tailspin. Milman’s monologue reads like an emotional ticker tape: “Fuck. Shit. Oh my God. Unbelievable. Oh God. Wow. Oh God. Wow, wow.”
And then, without warning, it happens: The market strikes an invisible bottom, the indexes reverse course, and stock charts head skyward. Perhaps it’s the glimmer of hope in the forthcoming meeting of the G20? Or plummeting oil prices? Milman doesn’t know why—or care. “Oh my God,” he says, whacking furiously on his keys, buying in as the market rises, then quickly selling off, over and over again, up, up, up. He leans off the edge of his seat now, like he’s trying to tilt the market to his will, a pinball wizard at the arcade. His monitor is streaked with green lines edging higher, his profit-and-loss gauge flipping numbers like a slot machine, punching up hundreds of dollars per second, point by S&P point—then thousands per second: green, green, green.
“Come on, NASDAQ, follow!” he hisses, urging it on. “C’mon, sixes, S&Ps! C’mon, let’s see fives, NASDAQ!”
The room is alive with chatter, row after row. The men lean into their screens, adrenaline surging. “Beautiful,” says a nearby trader.
“That is so fast,” whispers Milman. “Wow.”
In recent months, as the stock market has virtually spun off its axis, most people—the reasonable ones—have fled for their economic lives. But like a big-wave rider or a tornado chaser, Peter Milman dives in and out of the market’s sickening maw, riding the explosions of panic and greed and trying to snatch victory—profits—from the jaws of worldwide financial defeat. As a day trader who follows every tick of the Dow, he has a visceral view of the most manic-depressive stock market in recent history.
It is precisely the terrifying volatility—the VIX, the ticker symbol for the Chicago Board Options Exchange Volatility Index, has reached its highest recorded levels in recent months—that has made day traders suddenly hot again after years in the wilderness following the dot-com bust of 2000. (In fact, they don’t call themselves “day traders” anymore, preferring the term “active,” or “professional,” traders.) Downswings of hundreds of points on the Dow followed by equally large reversals offer great opportunities for the short-term investor. One need only jump in and chase a stock or an index for a few points: Buy in, sell off, repeat. Traders try to make money on the upswings and the downswings, in the latter case by short-selling—temporarily covering a long position for another party on the bet that his stock will go down. But Milman prefers to hitch a ride on the rebounds, the style of trading he learned during the bull market.
Throughout the fall, when the Dow Jones regularly swung 200 points in a single day (with one record-breaking 1,000-point swing in October), Milman experienced the most lucrative trading he’s seen since the late nineties. In December, as hedge funds liquidated en masse and the Federal Reserve tried to stanch the cash bleed at banks, prolonged upswings became less frequent, but traders continued to find pockets of momentum, especially at the end of the day, when there is typically a mad rush of trading before the bell. The bear market hasn’t slowed Milman down: He’s up roughly half a million dollars over the last three months. Last week, there was another flurry of volatility, with bad banking news sending the Dow plummeting to 7,949 points on Inauguration Day. The following day was a spiky roller-coaster ride, the Dow traveling down over 100 points, then reversing course for a 290-point gain. It was precisely the kind of day that day traders love. Milman made $18,000.
The percentage of traders like Milman is small, but it’s not just day traders who are approaching the market with a short time-horizon these days. Investment bankers and hedge-fund managers who might have once based their trades on extensive research and elaborate models are finding that their models don’t work in this chaotic environment. Some who otherwise would have shunned this kind of day-trading are finding it profitable to chase the minute-by-minute momentum. “It’s definitely not a buy-and-hold market,” says one investment banker. “This is a trader’s market.” Some out-of-work I-bankers are also trying their hands at day-trading, with varying degrees of success. Scott Redler, a partner at the trading group T3live.com, hired (then fired) a trader who had lost his job when one of the major investment banks closed last year. “He lost more than any of our traders because he didn’t understand the smaller time frame and risk,” says Redler. “They think they know how to trade and they lose because they don’t know what it takes.”
Image of ->> How to Make $14,000 in Four Minutes
Unlike the big traders, Milman, a Russian immigrant who grew up in Queens, is trading his own money, managing roughly $2.5 million, much of which he’s accumulated over the past two years. He followed his brother Serge into day-trading just after graduating from New York University’s Stern School of Business. “I graduated in December of 1998, and in February 1999, my trading account was open,” says Milman. “I borrowed 50 g’s from my brother, and three months later, he was paid back in full. I never looked back.”
To manage risk, Milman practices what is known as technical analysis, a controversial method of prediction based on studying buying and selling patterns. In other words, he analyzes not the underlying value of companies but the movement of crowds. On any given day, Milman is trying to make an informed bet about how mutual-fund managers, hedge-fund traders, and assorted individuals like him are going to behave. To figure that out, he turns to charts of stocks or indexes like the S&P 500 to see if he can recognize shapes in their zigzag formations, like the “cup-and-handle” or the “head-and-shoulders,” virtual pictographs that signal that the market could break in a predictable way, up or down.
“By learning technical analysis,” says Redler, “you become a psychologist of the stock market and trading off the mood.” It sounds absurd, like divining astrological meaning from the Big Dipper or Orion in the night sky. But it’s not far removed from the age-old practice of “reading the tape.” Even Burton Malkiel, the Princeton economist who wrote the 1973 best seller A Random Walk Down Wall Street, which argued that technical analysis is a bogus method of prediction, admits that it’s a strategy that seems to be working now. “This is really a very unusual period,” he says. “Even though I’m known as someone who thinks a lot of this technical analysis is malarkey, there is evidence of short-run momentum, and it’s just particularly strong now.”
“Technical analysis has been thought of as a black art or voodoo,” says John Roque, a managing director at Natixis Bleichroeder, a Manhattan brokerage. “But it’s no different than a football coach watching film to prepare for his next opponent.” Certain trading “plays” are likely to show up again and again, decipherable in chart formations that technical analysts have given names like “dragonfly doji” (a stock that opens and closes at the same high) or the “abandoned baby” (a three-day reversal in which a stock goes up for a day, stays flat for a day, then crashes). “You need to see the same thing hundreds of times, imprinted on your skull,” says Milman. “That’s where you get your confidence. You’ve seen it a million times, that this has worked in the past and you don’t want to miss it.”
This kind of trading is not for the weak of stomach. Milman readily admits his system typically gives him only a slightly better than 50-50 chance at making the right choice, and several of Milman’s colleagues had vaporized their accounts on a few bad bets. The fact is, few traders are successful at this game. Don’t try it at home.
When I first watch Milman trade, it doesn’t seem like his system is working at all. The market has been open for an hour, and he looks deflated, unshaven and rumpled in a lavender-and-white-striped western shirt, his cell phone, wallet, half-eaten bagel, and cold coffee a gloomy still life on his desk. Asian markets and futures are down, and a number of poor earnings reports have Milman struggling in choppy markets. Having made an aggressive bet on Goldman Sachs at the opening bell—betting it would go up instead of falling further down—he has already lost $12,000. “It wasn’t as tight of a formation as I would have liked it to have been,” he says, beating himself up for not reading the signs correctly. “There are plenty of fake-outs. I wasn’t nimble enough to get out in time.”
Milman sits in the corner of a large open-air office owned by a company called Lightspeed Trading, which rents out trading terminals to independent operators and collects a commission for every trade. In exchange, each trader gets a bank of monitors and some special software that lets him (or her, although there is only one woman present) buy and sell quickly. Milman is loosely affiliated with a small trading group with the illustrious name Ronin Asset Management. In truth, it’s just his brother Serge and four other guys—Chad, Stevie, Mikey, and Perry—trading the money of one investor while Peter and another friend trade their own money at adjacent terminals. Together, they form an informal knitting circle in which they tip each other to whatever they’re seeing in the market or hearing from friends on their instant-message boxes. While they sometimes encourage each other to check out specific stocks or index movements, Milman admits that when they pile into a trade together, they also tend to lose together. “Usually, the more people that are in a position,” he says, “the less likely it is to work.”
If nothing else, their private corner of Lightspeed’s office space, partitioned with glass walls, serves as a kind of boys’ club, complete with a mounted bass on the wall, a marker board scrawled with in-jokes, and salty dude talk all around. At one point, the trader named Chad describes the S&P’s chart shape as forming a “vagina pattern.”
“Big V,” says Milman, smiling.
The morning trading is so uncertain that Milman is only dipping into the market in small increments, putting out feelers to see if he gets a pull in one direction or another. “Right now, it’s not working out. See,” he says, pointing to a financial stock he’s been following, “it just went down three points.”
By 10:30 a.m., he’s recovered some of his losses, but his profit-and-loss gauge is still flickering red, down about $3,000. His neighbor appears caught in a downdraft: “Shit! Fuck!”
Financial news trickles in over Lightspeed’s intercom, and the traders keep track, but they don’t necessarily act on it. For one thing, they often find that stocks move on news before the news is even announced. For another, stocks don’t always react to news predictably. When Goldman Sachs announced worse-than-expected earnings in December, the stock actually went up instead of down. “It just goes to show, you can’t peg it on news stories,” says Milman. “It’s got to be more than that.”
Within a few minutes, a pattern begins to emerge on his screen. Milman thinks he sees a cup-and-handle in the S&P 500, a U-shape on the chart with the leading edge forming the handle. Milman believes this could portend a jump up. Not that he knows what’s driving the buyers and sellers to form this shape, only that it appears to work more often than not—if in fact he’s actually looking at a cup-and-handle and not just some random pattern (and many technical analysts believe this pattern is only observable in three-to-six-month stock charts, not ones lasting mere minutes or seconds). “If it could break above this,” he says, pointing to where the handle is forming, “it could be a technical buy point.”
Or not: “There’s no pure science to it, you know,” Milman hastens to add. He ruefully recalls a day in October when he lost “a hundred, comma,” meaning $100,000. “I was convinced that the bottom was in and just got way too aggressive, and it decided to go against me. It was a disaster. I made it all back in the next two days. But it was definitely a rough day. I hit the bar after that.”
Despite all its technical aspects, the basic template for day-trading appears fairly simple: If in a short period of time a stock has been ranging between, say, $20 and $25, Milman will dub the low price the “support” level, the high price the “resistance” level—a perceived floor and ceiling for the volley of buying and selling. He looks for signs that a stock will break the support or resistance level and head in a new direction—up or down, depending on the day’s overall trend—to a new price range, wherein the tug-of-war between buyers and sellers, bulls and bears, begins anew. Usually, after three or four volleys—visually speaking, three or four clusters of short, tight zigzags lasting as little as a minute, what Milman calls a “consolidation”—Milman will make a determination about whether a “setup” has arrived and buy in just as the stock breaks the price level. If he times it right and a stock does in fact break out, he starts selling off as he reaches the next peak, collecting profits all the way up. If he doesn’t time it right, he now owns a stock that’s headed down instead of up. Typically, he doesn’t wait around to see how far down it will go; he simply sells and takes the loss.
Do the chart shapes Milman observes actually predict what will happen? Hard to say. In reality, the reason the stock may have broken its resistance level after three or four volleys between $20 and $25 could simply be that a random mutual-fund manager decided that he wanted the stock at $20. By joining the volley, the sheer force of his large capital infusion—billions of dollars, enough to fundamentally move the market—might have pushed the stock price past $25. But why it happened is of little consequence to Milman. What matters is that thousands of traders just like him are encouraged to give chase once a stock breaks its prior level, effectively forcing the price even higher as everyone starts buying in. In a kind of self-fulfilling prophecy, so-called momentum traders bet that other traders are thinking the same thing they are, piling in, in hopes of selling off before the momentum peters out. Which came first, the fundamental behavior of buyers and sellers or the widespread belief that these levels have consequence, effectively inspiring the behavior to occur? It doesn’t matter. Momentum is momentum.
By 11 a.m., the S&P 500 is still cascading down, down, down. The cup-and-handle was a red herring, and Milman seems embarrassed by the poor showing. A laconic newsreader on Lightspeed’s intercom quotes hedge-fund manager George Soros as saying that “a deep recession is now inevitable and the possibility of a depression cannot be ruled out.” A nearby trader snaps, “Shut up.”
By 1:49 p.m., the cell phone, wallet, half-eaten bagel, and cold coffee are exactly where they were this morning, but now Milman is stripped down to his white undershirt, the pungent smell of fear and sweat hanging in the air. Milman’s only down $43 now, but getting out of the $12,000 hole seems to have taken its toll: He looks pale and rattled. He bums a cigarette from his neighbor and ducks out a side door.
All day, there have been brief, unproductive upticks, but much longer downticks. The S&P 500 has broken its 2008 low, according to CNBC, which after several hours is beginning to look more and more like an offtrack-betting monitor.
But just as the day’s market looks like a wash, the upticks in the S&P 500 start lasting longer, the downticks shorter. The market is constantly going up and down, but a new pattern starts to repeat, over and over, minute by minute, consistently breaking through the resistance levels the traders have drawn on their screens. Soon it’s clear that the S&P is going up more than it’s going down: There is a reversal happening. “There were some buyers stepping in, which is a really good sign,” Milman says, visibly relieved. “I couldn’t be happier right now.”
To monitor the S&P 500 even more closely, Milman looks at a so-called candlestick chart on one of his monitors, a series of green and red bars showing the trading direction over 30-second intervals. The bar looks like a segment of a stereo equalizer, pulsing to some invisible beat.
“Wait for setups, guys. Don’t just jump in,” says Milman, directing his team to wait for a signal that might predict the next upward strike. “You look for the chart to tell you this is a legitimate resistance point or support point,” he says. “Once my stock goes through, I’m going to get in.”
He cracks his knuckles. “Jesus.”
“There’s no pure science to it,” says Milman, recalling a day in October when he lost $100,000. “I made it all back in the next two days, but it was rough.”
Bush comes on the TV screen. He says free-market capitalism will prevail. “Is anybody listening to this?” asks a trader. “No,” says another emphatically and turns off the volume.
Milman jumps in but takes an unfortunate ride on Goldman Sachs, the chart of which suggested to him a renewed climb (the stock price broke a resistance level he’d been monitoring); instead, the stock peters out, taking Milman’s money with it. Milman urges it up, like it might hear him. “C’mon, Goldy, go! Go positive, you bitch … Come on, Goldy, get through this fucking level.”
He quickly sells off, takes a loss, and angrily clicks the Goldman chart off the screen. He’s now $600 in the hole. “Goldy, I’m disgusted with you.”
“It’s one of the go-to stocks that we trade,” Milman later tells me of Goldman Sachs. “It’s got volume, it’s got price fluctuations, it’s still one of the most expensive stocks.” Then, of course, there’s the most obvious data point of all: “It’s one of the few banks in business still.”
The other thing Milman and his friends spend a lot of their time trading is a single financial instrument called UltraShort Financials ProShares, which has the ticker symbol SKF and which they refer to as “Skiff.” A so-called exchange-traded fund, or ETF, it isn’t technically a stock but a combination of options meant to make a doubled-down bet against financial stocks, improving dramatically in value as companies like Goldman Sachs get hammered. (Just as often as he buys Skiff, Milman sells the fund itself short, effectively betting that financials will go up. He just uses it like a football, running it up or down the field.) Because Skiff tracks a broad index of stocks, it helps Milman avoid getting stuck on any individual stock that might behave unpredictably relative to the rest of the market. It’s hugely popular with day traders right now because it exploits the wild contortions in bank stock prices. It also tracks closely to the S&P 500 Futures Index, which Milman follows as a kind of canary in the coal mine, a second-by-second impression of the market’s overall direction.
Milman’s wife, Jenny, a professional caterer, checks in by IM. Milman tells her he’s trading poorly. “I love you,” she messages back, followed by a sly poke: “idiot.”
Milman sighs, slumping back into a funk. He has to wait for the next ride up, assuming it comes. Will it? There’s no telling. Nobody in the room was predicting a bounce this morning, and nobody can predict whether there will be another one now. But there’s a feeling of momentum starting to seep in, like this is it. You can actually feel it in the room, like somebody leaked laughing gas through the air vents. One by one, the traders are realizing the market’s going up now, kicking themselves for not buying in at the lower price, then immediately looking for a new low so they can buy in and chase the surge, be part of the momentum wave.
Image of ->> Chart Patterns
“Reversal days are the most powerful type of market moves, especially for traders like us,” Milman says. “You see stocks that are negative and [then] every stock goes positive and you can just close your eyes and pick a stock and speculate that the stock is going to go positive with the market.” As the market sinks lower, these reversal days become less frequent. With less trading comes less volatility to exploit—which is why Milman has scrawled on the group’s bulletin board, I HATE BEAR MARKETS.
Milman sees a new entry point forming, a clumped-up series of zigzags, three of them in a row, that he believes is a setup for a renewed spike, like the market is pumping itself up for its next pole vault. Milman mounts a short position with Skiff, betting financials will go up rather than down. He points to the level over which he needs the market to break. “If we can start breaking through this level, this previous high, if we can consolidate a little bit, test it, test it, and then rip through, I’ll be really, really big,” he says.
He observes what he calls a typical bull flag in the candlestick chart of the S&P 500. “There’s an up move, which is the pole,” he explains, pointing to the bobbing 30-second buy-sell candlestick, which has popped straight up, tall and green, meaning buyers have overwhelmed sellers and are possibly poised for a renewed run. “There’s the consolidation at the level, and the breakout is the tip of the pole.”
The reversal seems to be taking off in earnest now. Milman pans back for a wider view of the day’s S&P chart and points to the deep drop it made earlier and the arrowlike point—the V-shape—at which it began bouncing back just after lunch. Milman reviews: “This was called a bear trap,” he says, describing how short-sellers were suddenly forced to cover their bets, which has the effect of pushing up a stock’s value, sometimes very quickly. It’s one of the customary ways short-sellers get burned. “It rips back in their faces,” says Milman, “and the bears are like, ‘Holy shit, now what do we do?’”
By the end of the day, market-news reports seem to be groping around for a solid explanation behind the reversal. One trader tells the Associated Press that it’s just “a herd mentality. We started going higher, and you don’t want to be the last one on the boat.”
The green candlesticks are now punching upward in quick strikes. “Wow, that thing is moving so fast,” he says. “Fucking sick.”
Milman’s words are getting quicker, his breath shorter, his whole body more alert. As the market regroups for another surge, so does he. He quickly triples his short position on Skiff, going long on financials. The market climbs. He jams on the keys, makes several thousand dollars in a few seconds, exhaling with relief as he gets out before it zags back down. “That was a magic trick, but that was very risky,” he says, leaning back to collect himself.
“Oh my God!” says a nearby trader.
Flush with the last win, Milman sets up for another trade. “Nothing crazy, nothing crazy,” he says, rocking back and forth. “Test it, test it, and really rip through.”
“Right back up, Futures,” he says, talking to the S&P 500 gauge. It stalls for a few seconds, testing his patience: “Stop fucking around.”
He punches out an IM to his colleagues: “Looking to get absolutely monkey-ass long soon.”
From here, his monologue starts to sound like Luke Skywalker leading his squadron of X-wing pilots into the Death Star: “Futures are breaking out. We’re breaking above 81,” he intones, referring to the 881 mark on the S&P 500 Futures. A minute later, he’s up to $12,000. Moments later, $17,000. Then $21,000. He’s constantly adding to his short position on Skiff, betting on the upside for financials. The S&P agrees. Seconds tick by. The green candlestick spurts up rhythmically, green, green, green. “My God,” says the trader named Chad.
“C’mon, let’s see some buy programs kick in,” Milman says, hoping banks and hedge funds will give chase and move the prices even higher.
At 3:27 p.m., he’s made $24,700. “Oh my Skiff!” declares Milman. “Are you serious? Oh my God!”
There is disbelief all around. A big trader friend messages him on the screen: “$270k swing today for me on 2m!!”
3:45 p.m.: “We’re going higher!” Milman says, his profit-and-loss gauge whizzing past $27,000. His fingers flick away at the computer keys, buying several thousand shares on the down dips, selling off in 100-share increments as it climbs and crests on its next run.
He’s screaming at the S&P 500 Futures Index to tack on points as each one flips more green numbers on his profit-and-loss gauge. The S&P is back down but preparing its next climb, to 901, 902…
“C’mon, threes,” says Milman, with six minutes till the closing bell. “C’mon, fours, bitch. C’mon, fours, higher!”
“Treasury Secretary Paulson says major institutions have been stabilized,” intones the news announcer.
“C’mon, panic buyer! Let’s see five. Don’t be shy. Fives, baby. C’mon!”
Thirty-six thousand dollars.
“This is a volatile motherfucker. Holy Skiff!”
He’s tapping furiously.
Taptaptaptaptaptap.
He’s nearly sold off.
“Got 2,000 left.”
Taptaptaptaptap.
3:57 p.m.: $42,000.
Taptap.
“Oh my God. Finished.”
He pushes away from the desk with a great exhalation, eyes glazed over, the whole room reeking of body odor. The chatter starts to rise as traders stretch and eyeball each other’s screens to gauge their relative success or failure. A man in Milman’s group stares at his screen as if through a broken windshield. At two minutes till the bell, he glances over at Milman’s screen: He’s up $50,000.
picked up C,BAC and WFC in after hours,
I think the news coming out of washington will move the financials for at least a day? up hopefully
Fed launches program seeking to stem foreclosures
WASHINGTON (MarketWatch) -- After years of pressure from lawmakers on Capitol Hill, the Federal Reserve launched a program Tuesday seeking to stem the tide of foreclosures sweeping the nation. The plan seeks to allow regulators to rewrite mortgages owned by the Fed so that borrowers on the verge of losing their homes can have more relaxed terms if they can demonstrate that they won't re-default on the revised mortgage.
Fed Chairman Ben Bernanke, writing in a letter to House Financial Services Committee Chairman Barney Frank, D-Mass., said the policy is intended "to avoid preventable foreclosures on residential mortgage assets." It was not immediately clear how many mortgages qualify for the program. The Federal Reserve Bank of New York plans to buy $500 billion in mortgage securities by mid-year, according to a plan unveiled in November.
So far the bank has bought nearly $53 billion in mortgage securities as of Jan. 21. It is likely, however, that the Fed will apply the policy to assets it owns as collateral for government loans extended to American International Group Inc. and Bear Stearns last year. The Fed provided $30 billion in funding to assist J.P. Morgan Chase & Co. to take over Bear Stearns in March, as part of an effort to stem further erosion of the financial markets.
The measures come against the backdrop of larger moves by regulators to contain damage from the meltdown in the credit markets. Of the $700 billion bank bailout program launched in October, $250 billion has already gone into buying large minority stakes in financial institutions. In addition to the Fed's actions, the Treasury Department plans to spend between $50 billion and $100 billion of the second half of the $700 billion bank bailout bill to modify mortgages for troubled homeowners.
In the case of whole mortgages owned by the Fed, the agency will immediately take steps to provide homeowner relief. For debt that is part of mortgage securities, the Fed will encourage the mortgage servicer of the securities to implement a loan modification policy. The Fed said it would also "assist" the servicer to modify mortgages. With mortgage securities, the Fed will "support" loan modifications that are offered to borrowers who otherwise would default on the loans yet could sustain the modified loan payments.
Democratic lawmakers and some Republicans have been pushing for government assistance to help mitigate foreclosures because they believe rising foreclosures are a key contributor to the financial crisis. "I'm delighted to hear the news," said Senate Banking Committee Chairman Christopher Dodd, D-Conn. "Until you put a tourniquet on the foreclosures problem in this country you're not going to get to the bottom of this financial crisis." He argued that the provision was required as part of an Oct. 3 bank bailout bill.
Dodd added that more efforts are necessary. He recommended that government regulators consider additional programs such as a $24.4 billion mortgage foreclosure mitigation proposal introduced by Federal Deposit Insurance Chairwoman Sheila Bair. Bair, who will remain chairwoman of the FDIC, argues that her program could help 1.5 million homeowners avoid foreclosure.
picked up BAC, C, WFC after hours
C @ 3.50, bac @ 6.44, wfc @ 16.02 plan on holding, I think the news will push financials for a few days.....
Fed launches program seeking to stem foreclosures
WASHINGTON (MarketWatch) -- After years of pressure from lawmakers on Capitol Hill, the Federal Reserve launched a program Tuesday seeking to stem the tide of foreclosures sweeping the nation. The plan seeks to allow regulators to rewrite mortgages owned by the Fed so that borrowers on the verge of losing their homes can have more relaxed terms if they can demonstrate that they won't re-default on the revised mortgage.
Fed Chairman Ben Bernanke, writing in a letter to House Financial Services Committee Chairman Barney Frank, D-Mass., said the policy is intended "to avoid preventable foreclosures on residential mortgage assets." It was not immediately clear how many mortgages qualify for the program. The Federal Reserve Bank of New York plans to buy $500 billion in mortgage securities by mid-year, according to a plan unveiled in November.
So far the bank has bought nearly $53 billion in mortgage securities as of Jan. 21. It is likely, however, that the Fed will apply the policy to assets it owns as collateral for government loans extended to American International Group Inc. and Bear Stearns last year. The Fed provided $30 billion in funding to assist J.P. Morgan Chase & Co. to take over Bear Stearns in March, as part of an effort to stem further erosion of the financial markets.
The measures come against the backdrop of larger moves by regulators to contain damage from the meltdown in the credit markets. Of the $700 billion bank bailout program launched in October, $250 billion has already gone into buying large minority stakes in financial institutions. In addition to the Fed's actions, the Treasury Department plans to spend between $50 billion and $100 billion of the second half of the $700 billion bank bailout bill to modify mortgages for troubled homeowners.
In the case of whole mortgages owned by the Fed, the agency will immediately take steps to provide homeowner relief. For debt that is part of mortgage securities, the Fed will encourage the mortgage servicer of the securities to implement a loan modification policy. The Fed said it would also "assist" the servicer to modify mortgages. With mortgage securities, the Fed will "support" loan modifications that are offered to borrowers who otherwise would default on the loans yet could sustain the modified loan payments.
Democratic lawmakers and some Republicans have been pushing for government assistance to help mitigate foreclosures because they believe rising foreclosures are a key contributor to the financial crisis. "I'm delighted to hear the news," said Senate Banking Committee Chairman Christopher Dodd, D-Conn. "Until you put a tourniquet on the foreclosures problem in this country you're not going to get to the bottom of this financial crisis." He argued that the provision was required as part of an Oct. 3 bank bailout bill.
Dodd added that more efforts are necessary. He recommended that government regulators consider additional programs such as a $24.4 billion mortgage foreclosure mitigation proposal introduced by Federal Deposit Insurance Chairwoman Sheila Bair. Bair, who will remain chairwoman of the FDIC, argues that her program could help 1.5 million homeowners avoid foreclosure.