Sunday, April 03, 2005

Greenspan: You Can't Say I Didn't Warn You

It is often said that Alan Greenspan speaks in code and that the markets hang on his words, searching for subtle hints. How's this for nuance? "'It is the time to act to fend off the problems that are almost inevitable,' Greenspan said in answer to questions from Rep. Richard Baker, (R-La.)"

"Enabling these companies to increase in size...we are placing the total financial system of the future at a substantial risk." Now that's some serious C.Y.A.!

He is refering to the GSE's, Fannie Mae and Freddie Mac, which as Reuters tells us, will be back in the spotlight this week. "On Wednesday, the Fed chairman will testify before the Senate Banking Committee on regulatory reform of government-sponsored enterprises, or GSEs."

Readers of this blog have heard all this before, but in a week expected to be devoid of financial news, his testimony may be interesting.

13 Comments:

At 3:45 PM, Anonymous Anonymous said...

The GSE blowup is going to make the S&L crises look like a minor banking problem. It is outrageous how corrupt these people are!

The banks lend to anybody with a pulse, take their fees from loan origination then wipe their hands free of any risk by selling the loans off to the GSEs. Of course the FHA will back the defaults won't they? Oh wait, the FHA and GSEs are backed by the federal government. Oh wait, the federal government is funded by who?

This is the biggest tax payer fraud scheme yet hatched! I do not know why we don't have a lynch mob in DC yet!

 
At 3:53 PM, Anonymous Anonymous said...

The GSE blowup is going to make the S&L crises look like a minor banking problem. It is outrageous how corrupt these people are!

The banks lend to anybody with a pulse, take their fees from loan origination then wipe their hands free of any risk by selling the loans off to the GSEs. Of course the FHA will back the defaults won't they? Oh wait, the FHA and GSEs are backed by the federal government. Oh wait, the federal government is funded by who?

This is the biggest tax payer fraud scheme yet hatched! I do not know why we don't have a lynch mob in DC yet!

 
At 3:58 PM, Blogger John Law said...

everyone should read this week's doug noland column...it's more than just the GSEs.

"We’re in a liquidity boom now, the banks and the hedge funds have stepped into the roles Fannie and Freddie used to play. But what happens when the market get over-leveraged a little bit and we do not have the GSEs to provide the “backstop” bid? It is going to be so interesting to watch how this works, the next time the hedge funds decide to sell their mortgage-backeds. Who is going to buy them? Obviously, the Fed doesn’t want rates to go up to a point that will force the hedge funds to liquidate that paper. But if rates don’t go up, we’ll add another $1.3 trillion in mortgage credit this year, and add some $750 billion to the current account deficit. Again, what is the end game?

...bank credit expanded 9.2% last year, or by a record $569 billion, while bank loans grew by 9.1% or $403 billion, also a record. Or that bank mortgage exploded to $2.6 trillion last year, a gain of 15% or $339 billion—and at better than twice the pace it had grown, on average, during the preceding 8 years. On the banks’ liability side, total deposits last year climbed a record $510 billion, or 11.3%, to $5.03 trillion."

http://www.prudentbear.com/creditbubblebulletin.asp

 
At 5:54 PM, Anonymous Anonymous said...

(It is going to be so interesting to watch how this works, the next time the hedge funds decide to sell their mortgage-backeds. Who is going to buy them?)

There won't be any buyers. Banks will be forced to tighten their lending standards without the GSEs. I doubt that the banks are going to add to their already over-sized mortgage portfolios. Only the best credit quality will be marketable.

I get the feeling that this is coming to a head. Do you?

 
At 6:44 PM, Anonymous Anonymous said...

Greenspan is scheduled to speak 3x this week.

This is interesting: http://prudentbear.com/randomwalk.asp

Ben: this like will probably be replaced tomorrow. You might want to copy it to an entry.

 
At 7:02 PM, Anonymous Anonymous said...

In other news, the dollar strengthened against the yen... what the hell are markets thinking ???

Everyone knows that GM is going to have a debt problem sooner or later and now we have the mortgage market and Fannie & Freddie.

What exactly do foreign central banks have to see before they pull the plug on buying the US dollar ?

The GM issue is $600 Billion. The mortgage market is trillions of dollars. Ironically GMAC owns a bunch of mortgage debt as well. (Nothing like focusing on consumers ! Cars payments and mortgage payments...)

Am I missing something here ?

 
At 8:07 PM, Anonymous Anonymous said...

Wall Street Examiner writer is going to sell his house and take profits.

http://wallstreetexaminer.com/

See "Real Estate Bubble Front Row Seat"

Registration required.

 
At 9:45 PM, Blogger Ben Jones said...

(The GSE blowup is going to make the S&L crises look like a minor banking problem. It is outrageous how corrupt these people are!..This is the biggest tax payer fraud scheme yet hatched! I do not know why we don't have a lynch mob in DC yet!)

Agreed, and corruption is the issue. People are gonna be so pissed when this thing goes south; it may be unprecedented.

(the next time the hedge funds decide to sell their mortgage-backeds. Who is going to buy them?)

Yeah, the hedge fund angle is a wild card in this all-ready convoluted situation.

(Everyone knows that GM is going to have a debt problem sooner or later)

GMs problems have already shaken the junk bond market. AIG is adding another shock to bonds. A very serious matter, good point.

Thx for commenting..Ben

 
At 5:49 AM, Anonymous Anonymous said...

For all those currency traders out there. When the recession occurs that results in falling home prices or the fall in home prices that causes the next recession (really makes little difference what order they occur), the dollar is going to go up not down. The logic is simple falling U.S. comsumption will cause the trade balance to improve. The rest of the world which employs an economic model based on selling their goods to U.S. consumers will see their economies slow dramatically. They will be forced to stimulate both from a monetary and fiscal prospective. This will put their fiscal and trade accounts more in line with the U.S.. This will cause the dollar to increase in value not decline. When the U.S. went into recession in 2000, the dollar went up. It was only after the Bush admin cut taxes twice and Fed convinced the U.S. taxpayer to leverage up as much as possible that the dollar started to go down in 2002. During the process of deleveraging the opposite will occur. So to all those who are shorting the dollar as a hedge against their homes, not a good idea.

 
At 7:05 AM, Anonymous Anonymous said...

FX poster,
I mostly agree about the dollar's potential refersal. I've been long CHF since 2000 and have enjoyed the 40% ride. There may be another 5-10% fall, but the risk/reward for shorting the dollar is very low right now. Whats supporting the dollar now is the interest rate differentional between the US and other countries. However, if we stop raising rates or the Eurozone starts raising rates anytime soon, the $$ is doomed.

 
At 1:51 PM, Blogger John Law said...

the problem for the dollar is when central banks stop buying because they have losses they don't want to live with. the recession could occur BECAUSE the falling dollar(and rising interest rates) kills the housing bubble.

 
At 10:31 PM, Anonymous jake said...

The only thing that could tank the dollar is a big federal government deficit, something on the lines of $1 trillion or more, combined with continued low interest rates from the fed.

And this notion that foreign central banks "lose money" on their dollar portfolios is absurd. The central bank and the interests of the state itself are identical. The Japanese have two choices: either work hard and accumulate a lot of dollars now to pay for an aging population in the future, or go on a consumption spree now (like the Americans) and to hell with the future. Mild inflation in the United States doesn't change things. A trillion dollars that only has half a trillion dollars of purchasing power twenty years from now is still a hell of a lot of money.

 
At 10:32 PM, Anonymous jake said...

The only thing that could tank the dollar is a big federal government deficit, something on the lines of $1 trillion or more, combined with continued low interest rates from the fed.

And this notion that foreign central banks "lose money" on their dollar portfolios is absurd. The central bank and the interests of the state itself are identical. The Japanese have two choices: either work hard and accumulate a lot of dollars now to pay for an aging population in the future, or go on a consumption spree now (like the Americans) and to hell with the future. Mild inflation in the United States doesn't change things. A trillion dollars that only has half a trillion dollars of purchasing power twenty years from now is still a hell of a lot of money.

 

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