Let me be clear, No more bailouts…

The President, Nancy Pelosi, Harry Reid and only God knows how many politicians have all said that the Fin Reg bill ends all taxpayer assisted bailouts for Wall Street. Well, the news lately will put that phrase to the test. To think that all of these foreclosures are not an issue was crazy to begin with, but throw in a little foreclosure fraud and overnight you get a $47B putback from BlackRock and the Fed… go figure.

I believe the putback situation we saw yesterday was merely the beginning and there are many more tens, if not hundreds, of billions of dollars to follow. The banking system cannot handle that type of volume, remember in 2008 it was MBS and derivatives of MBS securities that caused our little problem. There is no easy remedy for this problem, regardless of what JPM or BoA says, since we are talking basic contract law here. Now, Congress did try to sneak through a bill that would have solved the industries problem, H.R. 3808 which would make courts accept all sorts of junk affidavits, but Obama ‘pocket’ vetoed the bill. Do not think that bill went away because it can come back and probably will under a new name, but it will fail in the courts, in my opinion, remember Obama said Congress needed to fix some issues with the bill, a telling statement on his opinion.

Not only does he want Congress to merely make some cosmetic changes to it, but Obama also said that this is just a “minor paperwork snafu.” Oh, how I wish that were true, but it is not a minor snafu. I do not support homeowners who took on irresponsible loans, I have long said they should lose their homes, but I dislike actual fraud even more than irresponsible borrowers. Let’s also not forget that these same lenders often did not verify the borrower’s income either which makes this whole problem a bit ironic as lenders cut corners to give the loan and now they cut corners to foreclose on the collateral. There is a remedy to all of this, as written on Zero Hedge previously, which is a borrower accepts a loan modification which clears the title, guess how successful the HAMP will be now.

If Congress doesn’t create a fix, which they should not, banks will lose foreclosure proceedings to those defendants who decide to fight it. I do not believe anyone really knows how big this problem really is and, frankly, I would not trust anyone who attaches a number to it. After all, these will be the same people who said sub-prime loans were a nonissue a few years ago, the missed that one by a mile, obviously, so they will miss this one as well. Not to mention that this issue will once again be a global issue. Who knows how many of these bonds are sitting on the balance sheet of banks all around the world. Hell, we do not even know what outstanding derivatives are still in play with this paper.

To assume that this will pass with no real material issue to the banks is idiotic. The risk is real and the system is still very, very weak. Perhaps now we know why bank reserves are still so high, did they know this might be an issue? Probably as we know banks do not like to fess up to mistakes until, well, the global financial system is about to implode. The credibility of banks and government has probably never been so low in all of history and that is a problem especially if they need help again. I fully believe another bailout will be needed over this and that means the issues of 2008 will return in 2010 with a vengeance.

Remember, in 2008 it was really the CDO’s and CDS’s on tranches of MBS products that were the problem. We all remember senior and junior tranches that were in the headlines, but back then at least you could get the collateral back to try and sell, albeit at a much lower price. Today if these things are still blowing up and you cannot even get the collateral back that would be a total loss for the investor or bank if it got putback to them. See the problem now? It is just not the banks that have this problem, but the GSE’s as well who may be guaranteeing a lot of this junk now. The GSE’s have $5T in outstanding mortgage guarantees and some say that mortgages as far back as the late 1990’s might not have proper chain of title.

The math is enormous and this should scare people to death. Perhaps it will all go away. Perhaps judges will ignore the 200 year precedents of contract law, they did it with the auto makers, so why not now. However, if this doesn’t go away we are definitely in for a rerun of 2008 again on a much larger scale since even the government is reaching the end of their credit line. Maybe QE2 will buy these securities and that is how the problem will disappear, but if nothing is done the entire mortgage market and perhaps some well known banks are done… again, unless all our politicians lied to us.

Sphere: Related Content

See who got what From Fannie/Freddie

Below is a list of campaign contributions that the GSE’s made as of September 2008. So, now do you know why Dodd and Frank liked the GSE’s so much? Are you really going to trust these people, who take from the very people we bailout, to run health care? Have you noticed that insurers are loving the new government plan so far, makes you wonder how they will cash in on it, doesn’t it?

It is time to vote out incumbents as they have a vested interest in corporate America instead of Americans.
All Recipients of Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008

Includes contributions from PACs and individuals. 2008 cycle totals based on data released electronically by the Federal Election Commission on Sept. 2, 2008.

Sphere: Related Content

The God Damned Blame Game

Seriously, when is America going to wake up and realize we are electing lawyers to lead this country. Lawyers are good for one thing, suing people and making sure lawyers will always have a job. I just read that Barack Obama, a lawyer with zero business experience, said he did not misread the economy, but was didn’t know how deep the problem was. Are you kidding me? We had Bear, Lehman, Freddie, Fannie, AIG all go under and you did not think it was as deep as it is?

The Failure of the Media

The media has failed America, clear and simple. They prefer to cover Michael Jackson’s death or Britney’s latest blunder rather than tell us what is really going on. The press was given constitutional privileges to be the watch dog of the government, wow have they failed us.

They Didn’t Pass It!

I thought this was a done deal, it just need a ceremonial vote and it was in. However, it did not go as planned…thanks to the Democrats, in part. The whole thing is just plain dumb, but Pelosi and Reid just keep opening their mouths and mess things up. We do not like this package, it is bad for us and the country as a whole, but at this point it is time that we pass it.

Clearly, given the markets reaction to the idiocy in Washington it has to go through. With the market declining, probably a 1,000 points tomorrow as well, it opens a new can of worms. Minimum capital requirements by brokerage firms. Given that most brokerages are now banks this allows them to borrow at the Fed Discount rate, 1% currently, which is a good thing in today’s market. However, brokerages must have minimum levels of capitalization in order to be in compliance.

Guess what? What was used as collateral where mortgage backed securities. Now you have a credit crisis with no readily available credit to firms that will need to increase their requirements given market volatility. Without this capitalization firms can be in trouble, this may not be a huge problem, but it is now out there. It is a sure bet that the market is going to have a very, very bad day tomorrow. This thing is far from over.

We briefly reviewed the bill today and it was not very good, in our opinion. The compensation restrictions had loopholes that you could drive a truck through. The payout of the bailout was a joke and will do little but boost market confidence at first. There is still no real protection for home owners, a little, but not much and there is no emergency bankruptcy protection for the US citizens. Given the fact that financial services firms just screwed us all wouldn’t you think that they would throw a bone to the US citizen in big financial trouble?

Emergency bankruptcy protection would allow you to go bankrupt without the means test and would allow the bankruptcy to be removed after 3 or 5 years. Giving a bailout to the crooks on Wall St. should allow our government to do something for us. Don’t get us wrong, very few people need to go bankrupt, but given the current situation bankruptcies will be on the rise so protection is needed from the government, like they actually care, but it needed to be said.

Another option is to give this money to us, the citizens, to save, spend on our mortgage or invest. This would boost the economy, create value in the martgage backed securities and we could probably leave some of the bad apples on Wall St. to rot for awhile. There will, even if this thing is passed, be major bank failures in the future, but not passing this thing was a real blow. We expect some significant failures to occur in the next 48 to 72 hours.

Of course, Congress is off for a couple of days…man they work hard…which will cause the markets to take heavy blows over the next 2 days. We are expecting that the best case scenario is a 1,000 loss over the next couple of days and a worst case scenario of a 3,000 point loss. This is speculation, but it is probably a reality. Regardless it will be a bumpy ride to say the least.

So, THANK YOU Pelosi, Reid and Frank for opening your big fat mouths. This is not a republican problem, this is not a democrat problem it is an AMERICAN problem so do what we do best….FIX IT and shut the hell up.

pelosi reid congress bailout 700 billion market correction bank failures broekrage captalization market reaction Sphere: Related Content