Obama Swats The GOP!

[FOTD]

RW gets it....

The recession ended much to the dismay of the fright. But it will be a slow crawl to gain back employment from the %20 level. 2010 will be a rough year in the financial markets. Besides, it's an election year with a grand obstructionist party whose real desire is to make voters believe their misery was brought on rapidly by the dims.

[Red Arrow]

our sales were up 15% in January from the previous January.

Certainly better than nothing or decreasing but up 15% of not much is still not much. 

[we vs us]

Not to entirely crush the groove but a sudden growth of 5.7% is a suspect number, comparing data from prior quarters.    Especially when there's been no job creation and much of this growth has arguably been via government expenditures, not necessarily business-to-business nor business-to-consumer which would be a better sign of overall health.  At best, it signals we might have finally hit a plateau, let's hope.  It's taken over a year after the rest of the country has felt it, but for certain the recession has finally landed at my company's doorstep.

President Obama has little choice in terms of any new banking regs being very strong at this point.  Credit is still very tight, banks that have money are sitting on it or investing in bonds, they don't want your deposits either, based on savings and CD rates.  Just wait until the commercial real estate crisis hits the fan and see how much chaos happens in the credit markets.  I hope like hell all the indications are wrong, but it's not sounding that way.  I suggest Congress and the Executive Branch keep as much a hands-off approach as possible right now other than encouraging smart lending and ensuring as much as possible legit credit needs are served while keeping the tax payer from being on the hook for more disasters as much as possible. 

What happened with the sub-prime fiasco was innocent enough in it's genesis: make sure credit is more accessible for everyone so everyone can share in the American dream.  The problem is, there were sign posts way, way before this collapse ever happened and Democrats and Republicans alike have that blood on their hands.  When lenders started advertising: "We will loan up to 110% equity, no credit check, blah blah blah" that's when the feds should have paid attention.  That was going on a full 10 to 15 years before this collapse.  Another bad signal is when real estate markets are growing at 5 to 10% a year, it's time to take a look at what kind of greed is spurring that.

I'm not suggesting that the government kill free markets either, but this gradual, un-checked permissiveness which cause huge bubbles and sudden bursts to be followed by costly reactive measures is the wrong approach.  I think The FED may have to alter some philosophy in adjusting rates perhaps accepting that there can be a slower rate of GDP growth and a slightly higher rate of unemployment might have to become an acceptible standard over the long-haul.  Obviously, we've seen the damage caused by ridiculous profit cycles followed by utter busts.

I simply don't think politicians have a clue how best to deal with regulating industries and they are not in an objective position if they accept campaign contributions and perks from those they are charged with regulating.  For them it all becomes about creating more revenue via punitive taxation or asserting more control for the simple sake of power or pleasing yet another special interest who will feed their coffers in an attempt to stay in control.  Or worse yet, simply passing window dressing when they have not a clue about the true consequences of their legislation.

Problem is, all these politicians were feeding from the same trough that was making billionaires out of traditional lenders and investment banks.  What true over-sight can any of us expect when members of Congressional oversight committees were participating in the orgy by accepting generous contributions from the industry they are charged with overseeing and partaking in unusually low interest rates not available to anyone other than a very, very select few on their homes?

I don't think I've ever agreed with everything you've ever written and, aside from a quibble here or there . . . spot on  

I think the recession is easing, but there's actually a pretty raucous ongoing argument in my industry about whether to batten down the hatches for round two or to expect a slow rebound.   It's pretty radical to believe in the slow rebound, especially after how far things have fallen.  There's a lot of paranoia, and conflicting senses of optimism and abject fear of the double dip.  

[rwarn17588]

Certainly better than nothing or decreasing but up 15% of not much is still not much. 

You're assuming wrongly that the previous January was bad for my company.

[Red Arrow]

You're assuming wrongly that the previous January was bad for my company.

Congratulations.

[Conan71]

I'm disputing that. The real-estate bubble is well-documented to have inflated big-time during the aughts. It began in earnest shortly after the precipitous decline in the economy after the 9/11 attacks. The big cheeses in Washington thought loosening credit would boost the economy, without ever considering what would happen if property prices fell.

And I saw the loosening of financial regulatory strings myself when my wife and I saw an astounding rise in our mortgage credit limit from 2001 to 2004 that was way, way above our modest income increases at the time. We both knew that something was horribly amiss.

And the recovery is definitely happening. The company I work for saw a healthy increase in the second half of '09, and our sales were up 15% in January from the previous January. A chunk of that 5.7% GNP increase in the last quarter was due to inventory being filled. But a portion of that is from the recovery, too.

It's just too bad that unemployment is the last thing to turn around in a recovery. Reagan felt that kind of pain in the '80s. There was no meaningful drop in the jobless rate until mid-1983. It took 3 1/2 years for Reagan to see the jobless rate fall below the level from when he first took office.

I'm glad your company is up, right now.  Indicators are maybe Q3 we will see a turn for us.  I'm in a business to business situation and we rely on manufacturing, commercial real estate, oil & gas, chemicals, ag, etc.  We aren't completely dead but our business doesn't indicate a recovery right now and it's way off from a year ago.  The comapny is very conservatively run by someone who tends the till very smartly but refuses to cut corners when it comes to customers and employees. They've made it through worse times.   

Banks started getting very agressive and loosening the purse strings after the contraction toward the end of Bush I's term.  A lot of the pain of the S & L bust was being forgotten by then.  The shilling for more risky 2nd mortgages started in the mid-'90's and very loose credit card policies started before that.  I worked in lending and finance until early '91 so I was a pretty astute observer of the industries trends at one time.  President Clinton, I think, had great intentions to advance minorities for the right reasons, but he seldom understood the potential consequences of his actions.  He was pushing for the Community Reinvestment Act, which had been largely ignored under Reagan and Bush to become more active and to use it as a tool to reinvigorate urban areas. 

Consequently, Henry Cisneros over at HUD developed rules designed to increase approval rates by 20% for minority loan applications out of thin air.  Just a simple edict from the government: "Make more loans, or there will be consequences." No matter that the borrowers or their property wouldn't have normally qualified under prudent lending policies.  Suddenly what was considered rubbish by credit standards could be construed as racism or redlining if banks balked.  What choice did they have?  Start lending to people who had a better chance of not paying them back and using marginal to totally unacceptible real estate for collateral.  The resulting debacle of ever-increasing stakes, profiteering, and the whole shadow market of credit swaps is well known but not well understood even on Wall St. or in D.C.

Keep in mind also that the relative security of the tech bubble in the late '90's was financed largely on borrowed money.  Remember all the ridiculous IPO's which made instant billionaires out of a select few and fueled a totally bogus inflation of home values in Silicon Valley and other parts of the country?  A LOT of tech jobs were created, paid for, and subsequently lost on over-valued stock offerings and risky commercial lending, that also resulted in a lot of foreclosures at the time, yest risky lending was allowed to continue.  Bush's biggest mistake was not simply allowing the cataclysm to happen in '01 and '02.  Instead, we kept putting Fix-A-Flat in the tires and they eventually blew out.

All this was set in motion long before Bush came into office, he simply didn't have the balls to deal with it effectively on his watch when the blow could have been softened and perhaps this cataclysm might have been averted.

[rwarn17588]

Consequently, Henry Cisneros over at HUD developed rules designed to increase approval rates by 20% for minority loan applications out of thin air.  Just a simple edict from the government: "Make more loans, or there will be consequences." No matter that the borrowers or their property wouldn't have normally qualified under prudent lending policies.  Suddenly what was considered rubbish by credit standards could be construed as racism or redlining if banks balked.  What choice did they have?  Start lending to people who had a better chance of not paying them back and using marginal to totally unacceptible real estate for collateral.  The resulting debacle of ever-increasing stakes, profiteering, and the whole shadow market of credit swaps is well known but not well understood even on Wall St. or in D.C.

I'm disputing this, too. The reason this edict was made was because banks were rejecting minorities' applications for no damned good reason at all. There were scores of white applicants that had similar credit histories who were getting approved for loans. What was construed as racism was; the overwhelming evidence could make you draw no other conclusion.

As for the tech bubble in the '90s on borrowed money, that's nothing new. Show me any new fast-rising sector that isn't being built on credit.

[we vs us]

Probably the biggest culprit was the Fed.  Greenspan had power much farther reaching than anything HUD could've mandated.  In response to the collapse of the tech bubble, he kept interest rates low levels for far far too long.  Right through 9/11 and into the late 2000's, much later than was warranted.  Cheap money caused a lot of the credit build-up.  Coupled with Bush II's lax regulation (and a bonafied belief that markets are inherently virtuous and will magically self-correct), all that money was allowed to go wherever it wanted, whether, legal, illegal, or quasi-legal.

[FOTD]

Nobody forgot....we read the tea leaves!

It's easy to see through this crap and get to the real truth....

[nathanm]

Banks started getting very agressive and loosening the purse strings after the contraction toward the end of Bush I's term.  A lot of the pain of the S & L bust was being forgotten by then.  The shilling for more risky 2nd mortgages started in the mid-'90's and very loose credit card policies started before that.
...
Consequently, Henry Cisneros over at HUD developed rules designed to increase approval rates by 20% for minority loan applications out of thin air. 

The ridiculousness regarding credit card approvals didn't really happen until 2003 or 2004. Before then, my lines were pretty rational. By 2006 my SO and I had lines far in excess of our yearly HHI. Not that we used them, but they were sitting there. Each of the big banks had a total CL for me alone of over $20k. Some of them decided to get pissy last year and cut lines drastically, a couple still haven't done much cutting.

Even if what you say about low-income loans being an issue, there simply weren't enough of them made to cause a serious problem. What caused a bigger problem were the middle and high income people who wanted more house than they could really afford. (And in some markets, that would be any house at all, although not here in Tulsa, thankfully)

I'd be interested to see what kind of default stats turn up for FHA loans made when FHA literally only serviced people with terrible credit. (because commercial banks were funding almost anything that moved) Their loss rates in 2006 and 2007 would be very interesting, indeed.

[Conan71]

The ridiculousness regarding credit card approvals didn't really happen until 2003 or 2004. Before then, my lines were pretty rational. By 2006 my SO and I had lines far in excess of our yearly HHI. Not that we used them, but they were sitting there. Each of the big banks had a total CL for me alone of over $20k. Some of them decided to get pissy last year and cut lines drastically, a couple still haven't done much cutting.

Even if what you say about low-income loans being an issue, there simply weren't enough of them made to cause a serious problem. What caused a bigger problem were the middle and high income people who wanted more house than they could really afford. (And in some markets, that would be any house at all, although not here in Tulsa, thankfully)

I'd be interested to see what kind of default stats turn up for FHA loans made when FHA literally only serviced people with terrible credit. (because commercial banks were funding almost anything that moved) Their loss rates in 2006 and 2007 would be very interesting, indeed.

Maybe in your personal experience that's when permissive credit card offers were coming, but I assure you, that had been going on years before that.

[nathanm]

Maybe in your personal experience that's when permissive credit card offers were coming, but I assure you, that had been going on years before that.

Well, yes, the subprime lenders got into it big long before that. But you didn't see the big boys (BoA/MBNA, Amex, Citi, Chase/FirstUSA/BankOne/etc) going completely wild until closer to the mid-00s.

People with high HHI could get good lines in the late 90s, but in that 03-04 timeframe is when they started going crazy and giving anybody with a not-terrible credit score 20 or 30 or 40 thousand in unsecured credit. Each.

Prior to that, there were offers, but the credit lines they'd give on them would be far more restricted. They'd tend to not give out credit lines in excess of your yearly income, for example.

[rwarn17588]

Well, yes, the subprime lenders got into it big long before that. But you didn't see the big boys (BoA/MBNA, Amex, Citi, Chase/FirstUSA/BankOne/etc) going completely wild until closer to the mid-00s.

People with high HHI could get good lines in the late 90s, but in that 03-04 timeframe is when they started going crazy and giving anybody with a not-terrible credit score 20 or 30 or 40 thousand in unsecured credit. Each.

Prior to that, there were offers, but the credit lines they'd give on them would be far more restricted. They'd tend to not give out credit lines in excess of your yearly income, for example.

I saw the same thing happening. A lot of it was fueled by commissions earned by the mortgage sellers, with almost no oversight for risk and no consideration of consequences.

I actually buttonholed one of the lending agents a few years ago about those reckless credit lines she was dishing out. She just shrugged; she didn't give a damn.

[we vs us]

One of the mistakes we make, though, is to focus on consumer credit and the buyer side of mortgages.  It's understandable, since that's how we all experienced the bubble, but that was in reality a relatively small part of the problem.

Our system can deal with bad loans in isolation, even a bunch of them occurring singly. What it can't deal with are bundles of bad loans that are sliced into a series of interconnected securities which are then sold, unregulated, on the open market.  It also can't deal with rating companies that would give these bundles A+ ratings, and it can't deal with those highly rated securities being snapped up by pension funds, 401ks, municipal investment funds, etc.  And then it can't deal when the underlying loans start to fail.  Oh, and don't forget all the AIG crap, billions and billions of dummy insurance policies taken out to secure the securities with the assumption that they would never have to be bailed out.  It's one thing to have a property bubble, but we had a securities bubble, too.

[nathanm]

One of the mistakes we make, though, is to focus on consumer credit and the buyer side of mortgages.  It's understandable, since that's how we all experienced the bubble, but that was in reality a relatively small part of the problem.

Our system can deal with bad loans in isolation, even a bunch of them occurring singly. What it can't deal with are bundles of bad loans that are sliced into a series of interconnected securities which are then sold, unregulated, on the open market.  It also can't deal with rating companies that would give these bundles A+ ratings, and it can't deal with those highly rated securities being snapped up by pension funds, 401ks, municipal investment funds, etc.  And then it can't deal when the underlying loans start to fail.  Oh, and don't forget all the AIG crap, billions and billions of dummy insurance policies taken out to secure the securities with the assumption that they would never have to be bailed out.  It's one thing to have a property bubble, but we had a securities bubble, too.

To be fair, there have thus far been few actual losses on AAA CDO tranches. They're still worthless if you want to sell, but they're still paying. The lower tranches have been largely wiped out, though.

But yes, AIG's unregulated insurance dealings (what is a default swap but insurance?) did cause significant problems because the swaps were a big part of what got the ratings agencies to go along with giving CDOs consisting of subprime mortgages AAA ratings. We were forced to bail them out due to the ripple effects that would have occurred had AIG failed to pay on their swaps.

Even at the big banks holding mortgages, most of the losses thus far have been book losses, not actual nonperforming loans. This despite all the foreclosures. Part of that has been due to the securitization, which spread the risk around.

Fannie and Freddie, thanks to only buying upper tranches have had very few losses, but they've been far more aggressive about booking loss reserves than any of the commercial banks. If the banks were booking reserves like Fannie and Freddie have, they'd look insolvent, too.

As the recession drags on, we will probably see more of those reserves turning into real losses. How much is, of course, anybody's guess. Given that last I saw, even credit cards weren't looking too terrible, it's still largely a crisis of confidence at the big picture level, even as things have been getting worse for many individuals.