Tuesday, May 17, 2005

FDIC Report Revisited

The FDIC flip-flop was revisited by this mortgage blog, with a few new facts. "The Corporation which insures and to an extent regulates the nations' banks has good reason to hope that it won't soon encounter the kind of real estate downturn that most recently occurred in 1990-1993."

"At that time the Corporation was forced to close some 300 banks, largely in the Northeast and California. This was merely the frosting on the massive savings and loan mess which forced closure of over 750 S&Ls throughout the Midwest and Southwest."

"The FDIC still had its hands full. The failure of the banks was largely due to their unbridled enthusiasm for real estate and FDIC inherited billions in real estate secured loans and bank owned (foreclosed) properties from the banks it closed. Clearing it all up took almost a decade and nearly bankrupted the bank insurance fund."

Check out the first comment, "I dont know much about this. I live in California. What is a housing bubble? What is a real estate bubble? Is this housing bubble going to hurt my home price in California? What can I do to protect myself? Thanks for any advice."

13 Comments:

At 1:48 PM, Anonymous Anonymous said...

This is exactly what pisses me off! I busT my butt and scrimp and save and sacrifice so that I have quite a bit to put down on a home purchase only to realize it does not mean squat because the ignorant lemmings in this country have freakin' blinders on and do not know a damn thing about personal finance nor the concept of value at risk. Just keep bidiing prices higher little sheep. Baa!!! Freakin' sheep -- may they be slaughtered.

TheGuru

 
At 2:53 PM, Anonymous Loren said...

Yes, but are you putting your savings in the bank? Residential real estate now makes up to 60% of bank loan portfolios (assets). So, not only were you scrimping and saving, the bank was giving out YOUR money to the morons borrowing unreal sums of money to bid prices up.

Greenspan is a criminal.

 
At 3:51 PM, Anonymous James Pitts said...

The realization that there is a problem has "bubbled up" to the leading publications. There are other articles today on WSJ relating to the bubble, summarized with a quote on my blog if you don't want to login:

http://www.snarph.com/blog/archives/000193.jsp

 
At 5:18 PM, Anonymous Anonymous said...

(Greenspan is a criminal)

How is Greenspan responsible for bank lending practices? If you want to blame someone, blame congress. Write to your Congressman and demand that the FDIC guarantee be reduced to $20,000 per person across the entire banking system, rather than $100,000 per person per bank, with no limit on the number of banks. If people want security beyond $20,000, let them buy savings bonds or T-bills. Demand that the Office of the Controller put limits on the percentage of real-estate loans banks can hold in their portfolios. Demand that the law be changed so that when a corporation goes bankrupt, the CEO and other highly paid executives have to pay back all salary, stock options and other compensation they received in the 5 years prior to bankruptcy, over and above some limit like $100,000/year. Demand that all forms of poison pills and golden parachutes be prohibited. Etc, etc.

It really disgusts me to listen to trash like this loren and so many others on this board blaming greenspan, which is the only government name they seem to now, besides the president, instead of blaming Congress, which is the ultimate cause of the problem. The Fed OMC, of which Greenspan is the chairman and one of 12 voting members, controls overnight interest rates and nothing else.

If I sound harsh, its because trash needs to put in its place and no one else seems willing to do it. That goes for the goldbugs and the other cranks too. Calling them cranks and crackpots isn't enough--trash revels in labels like that. The only word that seems to sting with these people is "trash".

 
At 5:19 PM, Anonymous Don said...

I found it interesting that my attempts to post an explanation of what a housing bubble is on that blog have not been approved by the site's moderator.

 
At 7:00 PM, Anonymous Anonymous said...

5:18 anonymous -- hopefully you did not attend the Patrice Lumumba University in Moscow for your debating-styles course. I do not know Loren. If she/he has something intelligent to propose, I enjoy reading it, whether or not I agree. This blog has been excellent in that 90% of its entries have been thoughtful, profanity-free and non-demeaning presentations of sometimes opposing views. Yours, unfortunately, is in the other 10%. Hopefully you'll lighten up and participate politely and intelligently. No "trash," as you so Leninistically put it, post here, at least not a far as I can tell.
Chip

 
At 8:16 PM, Blogger deb said...

Thanks, Chip. It seems, as more participants have arrived, the discussions have sometimes turned ugly. This board is/was great because everyone has been so polite, even if they disagree. I really enjoy hearing other views especially when they support them and back them up with sources, etc.

If your point is well made, you can get it across without namecalling.

 
At 8:22 PM, Blogger Ben Jones said...

5:18 anon,
If you look at my posts, I consistently say, it's the Fed and congress. Some of your ideas are interesting and I bet we could have a good talk. But one of the things that makes a blog work, IMO, is to stay on subject.

So if we are talking about a housing bubble, who has the power to put a brake on prices? Congress is too politically vulnerable. The system relies on an independent Federal Reserve to 'take the punch bowl away'. They have failed at that.

I understand what your saying, but don't think we don't know there are bigger pictures than the housing bubble, in the universe of ideas. Thanks for commenting.

 
At 8:41 PM, Anonymous Anonymous said...

anon 5:18

"Write to your Congressman and demand that the FDIC guarantee be reduced to $20,000 per person across the entire banking system, rather than $100,000 per person per bank, with no limit on the number of banks"

Won't help with housing bubble. Don''t really see how this would help anything as most people have no savings anyway.

"Demand that the Office of the Controller put limits on the percentage of real-estate loans banks can hold in their portfolios."

Most banks don't hold loans anymore, they simply securitize them and they are packaged up as MBS and sold in the bond market. This is one of the key features of the mortgage finance bubble.

"Demand that the law be changed so that when a corporation goes bankrupt, the CEO and other highly paid executives have to pay back all salary..."

Won't have much of an effect on the current housing bubble, although this isn't a bad idea.

"The Fed OMC, of which Greenspan is the chairman and one of 12 voting members, controls overnight interest rates"

Entire markets hang on Greenspan's every word. Greenspan has an opportunity to put some serious fear in the carry trade players by opining very harshly about RE and other topics this week and re-introducing the concept of "risk" into their calculations and models. Will he do this? Probably not. At most he will allow one of his henchmen (Kohn?) to vaugely address the possibility of a housing bubble and to carry on with the "measured pace" business. AG is much more influential than you are giving him credit for.

The only thing congress could do about the bubble is mandate (through the FDIC, OCC, or perhaps the GSE oversight) 20% down and no more I/O, neg-am, HELOC, ARM, etc. I doubt this spineless bunch in congress will take any of these steps until after the collapse.

I believe AG has a larger role in this mess than you aren't giving him credit (blame?) for. Instead of just ranting uselessly about gold bugs and trash, why don't you offer something constructive to the discussion?

 
At 9:31 AM, Anonymous Anonymous said...

Some good points here.
Guru I feel your frustration... I'm in the same situation with saving and not feeling comforatble
with taking a crazy mortgage to
get a house.

My feeling is that Greenspan is just as frustrated as us in the inability of the fed
rate to control mortgage rates..

I think at this point, I'd like to see congress get involved.

Here is what I think needs to be done:

1) Any bank offering interest only loans, or no documentation
loans from this point on should have its FDIC guarantee lowered
to 20k per person. This would dry up the supply of risky loans.

2) Any single family homes which are not first of second houses should be subject to a higher state tax. (or an additional federal tax) in order to make housing speculation much less
desirable.

3) Limit GSE mortgage holdings as
Greenspan suggested. Also, limit
the GSEs to only trade in fixed rate mortgages.

Mad money in the
stock market is fine since it helps companies get off the ground,
and people don't _need_ stock.
BUt what we see today is that mad money in housing is really ruining the American Dream for the middle class.

Granted, drying up funding will hurt the middle class for a little while until housing prices drop once again. But after that things should be better.

 
At 9:54 AM, Anonymous Anonymous said...

Easy, just limit ARM/IO loans to sophisticated customers. They are designed for these people anyway.

These products should never have been available to marginal buyers.

We should use the same guideline as the the one for hedge fund participation, which I think is 1M liquid net worth or 300K+ documented income.

 
At 10:01 AM, Anonymous Anonymous said...

Are some of you really recommending MORE government to prevent problems? Pretty soon this will be Cuba. What we need is not more regulation, but a gold standard. There were no wild bubbles before fiat currency.

 
At 11:23 AM, Blogger Thomas said...

"No wild bubbles before fiat currency" -- hogwash. If anything, bubbles were even wilder. How about 1887 in Los Angeles and 1925 in Florida -- not to mention various stock booms and busts.

 

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