Friday, Jan 29, 2010
Eye of the storm
Market Oracle: Financial Crisis Triggered Shock and Awe Response for Accounting Driven Recovery
This is one of the graphs showing why we are in a lull and the reason for the double dip. We are currently in the eye of the storm. The writer concludes with a simple sentence: "For anyone buying Banking stocks or LONG the market ... Caveat Emptor!"
Posted by freemanphil @ 01:35 AM (931 views) Add Comment
9 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. freemanphil said...
May 1, 1930 -“While the crash only took place six months ago, I am convinced we have
now passed the worst and with continued unity of effort we shall rapidly recover. There is
one certainty of the future of a people of the resources, intelligence and character of the
people of the United States – that is, prosperity.” – President Hoover
June 29, 1930 -“The worst is over without a doubt.” – James J. Davis, Secretary of Labor.
2. jonny parker said...
What is Option ARM if you don't mind me asking?
3. inbreda said...
Adjustable Rate Mortgage - it means that it starts off at a heavily subsidised rate (that the debtor can afford) and then after a set period it adjusts upward - often to a rate that the debtor cannot afford. Often sold on the basis that by the time the rate resets, the property will be worth a gazillion dollars more (it's a yank product really, but financed globally) so more money can be borrowed against the property to cover the difference.
Basically a financial time-bomb, and the volume of americans unable to pay their mortgage is what really caused the credit crunch. As the chart shows - credit crunch part 2 is on its way.
4. freemanphil said...
Inbreda, Option ARM are the real reason why interest rates are low. Interest rates must stay at 0% until after they have re-set to avoid total implosion, because Adjustable Rate mortgages would be more expensive if Interest rates rise. So, the are damned if they do, damned if they don't. They are in a box, because keeping interest rates low until early 2012 risks hyper-inflation. But we may get inflation and implosion because real interest rates are rising, led by Greece with 7% interest rates, next will be Ireland and Spain, then Britain. British interest rates on Gilts have been driving up, as have rates on Federal reserve debt.
5. Icarus said...
The problem of lending to people who couldn't repay (unless house prices kept on rising for ever, as inbreda says) was well recognised long before sub-prime defaults lit the blue touch paper. This is from Sheila Bair's submission to the US Financial Services Inquiry Commission a couple of weeks ago. (Ballon payments - where there's a lot left owing after mortgage repayments end.)
"Federal consumer protections from predatory and abusive mortgage-lending practices are established principally under the Home Ownership and Equity Protection Act (HOEPA), which is part of the Truth in Lending Act (TILA). TILA and HOEPA regulations are the responsibility of the Board of Governors of the Federal Reserve System (FRB) and apply to both bank and non-bank lenders.
HOEPA, which was enacted in 1994, contains specific statutory protections for a narrow category of high cost loans used for mortgage refinancings. These protections include restrictions on prepayment penalties, balloon payments, and extensions of credit without consideration of a borrower's ability to repay. HOEPA defines these high cost loans in terms of threshold levels for either interest rates or points and fees. Many of the toxic mortgage products that were originated to fund the housing boom did not fall within the high cost loan definition under HOEPA. However, many of these toxic products could have been regulated and restricted under another provision of HOEPA that requires the FRB to prohibit acts or practices in connection with any mortgage loan that it finds to be unfair or deceptive, or acts and practices associated with refinancing of mortgage loans that it finds abusive or not otherwise in the interest of the borrower.
Problems in the subprime mortgage market were identified well before many of the abusive mortgage loans were made. A joint report issued in 2000 by HUD and the Department of the Treasury entitled Curbing Predatory Home Mortgage Lending noted that a very limited number of borrowers benefit from HOEPA's protections because of the high thresholds that a loan must exceed in order for the protections to apply. The report also found that certain terms of subprime loans appear to be harmful or abusive in practically all cases. To address these issues, the report made a number of recommendations, including that the FRB use its HOEPA authority to prohibit certain unfair, deceptive and abusive practices by lenders and third parties. During hearings held in 2000, consumer groups urged the FRB to use its HOEPA rulemaking authority to address concerns about predatory lending. Both the House and Senate held hearings on predatory abuses in the subprime market in May 2000 and July 2001, respectively. In December 2001 the FRB issued a HOEPA rule that addressed a narrow range of predatory lending issues.
It was not until 2008 that the FRB issued a more extensive regulation using its broader HOEPA authority to restrict unfair, deceptive, or abusive practices in the mortgage market".
Deliberate deregulation under pressure from Wall Street lobbying overrode these warnings. And Fed authorities overrode many attempts at state level (e.g. Eliot Spitzer in NY) to protect the gullible from mortgage loan sharks.
6. freemanphil said...
Icarus. What occurred was not deregulation. What they did, was legalize fraud. Fraud is always unlawful under common law. They treasonously over-rode hundreds of years of common law with statutes that legalized fraud. Deregulation is the decriminalization of those things that do not cause harm, loss or fraud. Their commandeering of the language has slam dunked your ability to see the traditional conservative for the common white collared crook.
7. icarus said...
freemanphil - There were statutory consumer protection provisions (not common law) which were overridden or ignored, deliberately and for profit at the expense of others. It's reasonable to call that deregulation (de facto at least). I used the word because it's part of a whole raft of deregulation (including finding ways to get round regulations) in the finance sector that fuelled the whole crisis. I wouldn't disagree with anyone calling it fraud though.
8. freemanphil said...
What they did, was legalize fraud, which is unlawful. If all regulations went tomorrow, but common law courts were bought to their proper place, and if treason against the common law system was subject to capital punishment then, we wouldn't have had any of the problems of today, but, the Bank of England would have to cease operations, because their money printing activities are wholly fraudulent and constitute theft from we the people, and from foreign countries that hold Sterling as part of the reserve.
9. icarus said...
Unlawful legalised fraud? Contradiction in terms, innit?