Posts Tagged ‘Timothy Geithner’

JP Morgan Chase’s $2 Billion Loss Under Investigation

Monday, May 21st, 2012

As the Department of Justice and the FBI open their investigation into how JP Morgan Chase lost $2 billion, the government is investigating to determine if any criminal wrongdoing occurred.  The inquiry is in the preliminary stages.  Additionally, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which regulates derivatives trading, are also looking into JPMorgan’s trading activities.  JPMorgan CEO Jamie Dimon said that the bank made “egregious” mistakes and that the losses tied to synthetic credit securities were “self-inflicted.”

The probe is perceived as necessary, given the ongoing debate about bank regulation and reform, and one expert said it raised the level of concern around what happened.  “The FBI looks for evidence of crimes and goes after people who it alleges are criminals.  They want to send people to jail.  The SEC pursues all sorts of wrongdoing, imposes fines and is half as scary as the FBI,” said Erik Gordon, a professor in the law and business schools at the University of Michigan.

According to Treasury Secretary Timothy Geithner, the trading loss “helps make the case” for tougher rules on financial institutions, as regulators implement the Dodd-Frank law aimed at reining in Wall Street.  Geithner said the Federal Reserve, the SEC and the Obama administration are “going to take a very careful look” at the JPMorgan incident as they implement new regulations like the “Volcker Rule,” which bans banks from making bets with customers’ money.  “The Fed and the SEC and the other regulators — and we’ll be part of this process — are going to take a very careful look at this incident and make sure that we review the implications of what that means for the design of these remaining rules,” Geithner said.  Under review will be “not just the Volker Rule, which is important in this context, but the broader set of safeguards and reforms,” Geithner said, noting that regulators will also scrutinize capital requirements, limits on leverage and derivatives markets reforms.  “I’m very confident that we’re going to be able to make sure those come out as tough and effective as they need to be,” Geithner said.  “And I think this episode helps make the case, frankly.”

Geithner said that Dodd-Frank wasn’t intended “to prevent the unpreventable in terms of mistakes in judgment, but to make sure when those mistakes happen — and they’re inevitable — that they’re modest enough in size, and the system as a whole can handle them.”  The loss “points out how important it is that these reforms are strong enough and effective enough,” he said.

With the passage of Dodd-Frank, banks are required to hold more capital, reduce their leverage and assure better cushions across the financial system to accommodate losses.  Geithner’s comments are similar to those made by other White House officials, who have avoided blasting the bank for its bad judgment, and instead used the event to bolster the case for the financial overhaul.

“We are aware of the matter and are looking into it,” a Justice Department official said “This is a preliminary look at what if anything might have taken place.”  The inquiry by the FBI’s financial crimes squad is in a “preliminary infancy stage,” the official said, and federal law enforcement agents are pursuing the matter “because of the company and the dollar amounts involved here.”

JPMorgan’s and the financial system’s ability to survive a loss that large showed that reforms put in place after the 2008 financial crisis have succeeded.  Nevertheless, the loss by the nation’s largest bank highlights the need for tough implementation of the Volcker Rule on proprietary trading and other rules that regulators are still finalizing.  “The whole point was, even if you’re smart, you can make mistakes, and since these banks are insured backed up by taxpayers, we don’t want you taking risks where eventually we might end up having to bail you out again, because we’ve done that, been there, didn’t like it,” according to President Obama.

Mark A. Calabria, Director of Financial Regulation Studies for the Cato Institute, takes a contrarian view.  Writing in the Huffington Post, Calabria says that “Unsurprisingly, President Obama and others have used the recent $2 billion loss by JPMorgan Chase as a call for more regulation. Obviously, our existing regulations have worked so well that more can only be better!  What the president and his allies miss is that recent events at JPMorgan illustrate how the system should — and does — work.  The losses at JPMorgan were borne not by the American taxpayer, but by JPMorgan.  The losses also appear to have been offset by gains so that in the last quarter JPMorgan still turned a profit.  This is the way the system should work.  Those who take the risk, take the loss (or gain).  It is a far better alignment of incentives than allowing Washington to gamble trillions, leaving someone else holding the bag.  The losses at JPMorgan have also resulted in the quick dismissal of the responsible employees.  Show me the list of regulators who lost their jobs, despite the massive regulatory failures that occurred before and during the crisis.

According to Calabria, “President Obama has warned that ‘you could have a bank that isn’t as strong, isn’t as profitable making those same bets and we might have had to step in.’  Had to step in?  What the recent JPMorgan losses actually prove is that a major investment bank can take billions of losses, and the financial system continues to function even without an injection of taxpayer dollars.  It is no accident that many of those now advocating more regulation are the same people who advocated the bailouts.  Banks need to be allowed to take losses.  The president also sets up a ridiculous standard of error-free financial markets.  All human institutions, including banks and even the White House, are characterized by error and mistake.  Zero mistakes is an unattainable goal in any system in which human beings are involved.  What we need is not a system free of errors, but one that is robust enough to withstand them.  And the truth is that the more small errors we have, the fewer big errors we will have.  I am far more concerned over long periods of calm and profit than I am with periods of loss.  The recent JPMorgan losses remind market participants that risk is omnipresent.  It encourages due diligence on the part of investors and other market participants, something that was sorely lacking before the crisis.”

Treasury Makes $25 Billion in Successful MBS Sale

Wednesday, April 4th, 2012

The Treasury Department just raked in a cool $25 billion for the American taxpayer. It sold the agency-backed mortgage-backed securities (MBS) that it bought during the financial crisis.  “The successful sale of these securities marks another important milestone in the wind-down of the government’s emergency financial crisis response efforts,” said Mary Miller, Treasury assistant secretary for financial markets.  The Treasury’s mortgage purchases were one part of the government’s support for banks and the financial markets.  The associated takeover of Fannie Mae and Freddie Mac cost another $151 billion.

Treasury bought the mortgage debt in an attempt to stabilize the housing industry, with funds approved by the Housing and Recovery Act of 2008.  Critics claim that it did more to prop up Wall Street than Main Street.  Anti-bailout anger fueled both the conservative Tea Party movement and Occupy Wall Street on the left.  Treasury Secretary Timothy Geithner argues that the government’s action helped prevent a deeper economic downturn.  TARP funds enabled the government to purchase preferred stock in banks, other financial firms and some automakers in return for the public investment.  Some of the preferred stock ultimately was converted to common stock.  According to a Treasury official, to date $331 billion has been repaid, including dividends and interest earned on the preferred shares.  While TARP currently is $83 billion in debt, Treasury projects losses will eventually number about $68 billion.  The nonpartisan Congressional Budget Office forecasts a lower loss of just $34 billion.

The Obama administration has stressed the TARP bank program’s performance, which has returned about $259 billion, more than the $245 billion lenders received.  At present. there are 361 banks remaining in TARP.

In all, Treasury bought $225 billion worth of mortgage-backed securities during the depths of the financial crisis between October of 2008 and December of 2009.  Some of those securities were backing loans believed to be worthless, according to some financial analysts at the time.  Treasury’s portfolio, however, was comprised mostly of 30-year fixed-rate mortgage-backed securities and were guaranteed by Fannie Mae or Freddie Mac, enhancing their value.  Congress authorized $700 billion for TARP, but Treasury only paid out $414 billion.  Of that, $331 billion has been paid back, including profits, interest and dividends made from investments.

Writing for The Hill, Peter Schroeder notes that “Now, with markets surging and the financial crisis in the rearview mirror — and with the presidential campaign rapidly approaching — the government is backing away from its outsized presence in the markets.  The move marks the latest in a series of steps by the government to exit its crisis-driven investments.  In July, the Treasury announced it was no longer invested in Chrysler, ending with a roughly $1.3 billion loss.  However, the government has fared better with investments in the banking sector.  The Treasury announced roughly one year ago that it had officially turned a profit on that portion of the bailout, and ultimately estimates it will turn a $20 billion profit on the $245 billion that was pumped into banks.”

All industry analysts are not as optimistic. Economist Douglas Lee, of the advisory firm Economics from Washington, said it is inevitable that the government will end up with “substantial losses” on the bailout, but that it was appropriate to try to reap gains where possible.  “A lot of these assets that were acquired were distressed at the time that they were bought so the chance of coming out ahead in selected areas is quite good,” Lee said.  For the long term, however, the effort to rebuild a reliable housing finance system means that costs for subsidizing operations of firms like Fannie Mae and Freddie Mac will continue to be expensive.  Investments in insurer AIG and in automakers might prove hard to recoup 100 percent.  Recently, Treasury said it was selling 206.9 million shares of AIG, which would reduce the government’s stake in the company to 70 percent from 77 percent.  “You have to say that these programs have worked in the sense that it’s restored a sense of stability that we sought,” Lee said, “but now it is right to have the government back out and let the private sector get on with their job.”

Federal Regulators Floating the Idea of 20 Percent Downpayment Mortgages

Thursday, November 10th, 2011

Is a 20 percent downpayment on a house or condominium on the horizon?  If some federal regulators get their way, buyers may have to put down $60,000 on a $300,000 house to get the best possible mortgage interest rate.  Although this sets the bar high, regulators believe it will prevent the risky lending practices that ended in a rash of foreclosures.

Numerous groups immediately announced their opposition to the proposal, contending that a 20 percent downpayment is too burdensome for many working class would-be homebuyers.  If the proposal goes into effect in summer, it is not likely to have a major impact on the housing market for a while because the majority of mortgages are insured by federal agencies and are exempt from the rule.  John Taylor, chief executive of the National Community Reinvestment Coalition, said “If we require 20 percent downpayments to get a loan, we will ensure broad swaths of working- and middle-class people will not be able to get a loan.”  According to Tom Deutsch, executive director of the American Securitization Forum, believes the 20 percent requirement will do little to encourage banks to make loans without federal backing.  “The extremely rigid proposals…will further prolong the U.S. government’s 95 percent market share of the credit risk of newly originated mortgages,” he said.

Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, disagrees.  “Properly aligned economic incentives are the best check against lax underwriting,” she said.  The Federal Reserve and Treasury Department also support the move, and other federal regulators are expected to get behind the new requirement.  The move comes as the Obama administration is working to end Fannie Mae and Freddie Mac, the government-backed mortgage companies, by reducing the competitive advantage they have over banks.  One proposal is to require the agencies to charge higher fees to draw private firms back into the mortgage market.

Mortgage Bankers Association CEO John Courson warns that the 20 percent downpayment requirement would further damage already sluggish housing demand.  “We believe that such a narrow construct of the risk retention exemption would limit mortgage opportunities for qualified borrowers more than it would reduce the number of problem loans,” Courson said.  Ron Phipps, president of the National Association of Realtors, said the new rules will further restrict mortgage credit and housing recovery overall.  “Adding unnecessarily high minimum downpayment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home,” Phipps said.

Treasury Secretary Timothy Geithner, who is leading the regulatory effort, said “Risk retention will help promote better standards for underwriting and securitizing mortgages, which is good for the long-term health of the housing market and for our nation’s economy.”  An element of the Dodd-Frank Act that impacts the residential market, known as “risk retention”, is a rule that requires that mortgage lenders and securitizers to invest a minimum of five percent of the risk on qualified residential mortgages. The rule will play a crucial role in determining how much risk banks have to retain from mortgages they originate or package into bonds known as mortgage backed securities (MBS) and then subsequently sell into the market.  “If this proposal goes through, the way it’s written, I think the housing market will not recover for years to come,” says Joe Murin, chairman of consulting firm The Collingwood Group.

Reinventing Fannie and Freddie

Thursday, June 2nd, 2011

The initial steps to dismantle Fannie Mae and Freddie Mac are underway with the introduction of a bipartisan bill in the House of Representatives that would replace the mortgage giants with a minimum of five companies that would issue mortgage-backed securities with significant federal regulation.  The compromise legislation proposed by Representative John Campbell (R-CA) and Representative Gary Peters (D-MI) is likely to be the only plan that will attract sufficient support from both parties on a politically volatile subject, especially at a time when gridlock looms over issues such as how to curb federal spending.  The bailout of the two companies has cost taxpayers upwards of $100 billion.

According to Representative Campbell, “Rather than putting out a political marker, we can move a piece of legislation that is significant…and can actually become law.  The only other approach that’s out there in a bill is one that replaces Fannie and Freddie with nothing.”  Other policymakers, such as Treasury Secretary Timothy Geithner, have discussed the merits of a limited but unambiguous government guarantee of securities backed by certain types of mortgages.  The new entities – similar to Fannie and Freddie — would be limited to purchasing loans that meet certain standards, including size caps.  The difference would be that the firms would be required to hold much more capital than Fannie and Freddie.  Only the mortgage-backed securities that they issue –not the companies themselves — would enjoy federal guarantees.  The companies would operate similarly to public utilities and likely will not have exchange-listed shares.

Critics say the proposal risks recreating the same dynamics that led Fannie and Freddie to use their government ties to take risks that harmed taxpayers.  “In reality, this is almost surely going to be terrible,” said Dwight Jaffee, finance professor at the University of California, Berkeley.   Government insurance programs, he says, inevitably lead to “a catastrophe.”  Advocates argue that taxpayers will be less exposed to losses because borrowers will have to make significant downpayments.  Additionally, the new firms will have to hold more capital.  Additionally, the firms will be required pay a fee for government backing to finance a catastrophic insurance fund, much as the Federal Deposit Insurance Corporation levies fees and handles bank failures.

The mortgage and housing industry support a continued government role in supporting mortgage lending, including the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders.

The agencies are still hemorrhaging money.  For example, Fannie Mae reported a loss of $8.7 billion for the 1st quarter of 2011, which included a $2.2 billion dividend payment to the Treasury Department.  The loss was significantly less than the $13 billion reported one year ago.  “We need to manage our credit book — our old legacy book very vigorously,” said Fannie Mae President and CEO Michael Williams.  But that is not in conflict with helping distressed homeowners.  “Helping people to avoid foreclosure is a good thing,” Williams said.

Action must be taken to keep the mortgage market afloat and provide securitization for investments.  According to a Washington Post editorial,  “The housing market is still in deep trouble.  Prices nationwide have fallen by about a third since the peak in 2006 — and they appear to be trending down again.  The resulting hit to household wealth may hinder the recovery, which is already sluggish.  Small wonder that various advocates for housing are once again asking Washington for help.  But in at least one area, the prescription would be worse than the disease.  We refer to calls for extending the current elevated limit on the size of loans eligible for securitization by Fannie Mae and Freddie Mac, the mortgage-finance giants operating under government control.  Congress ‘temporarily’ raised the limit to a maximum of $729,759 in certain markets in response to the sudden evaporation of private liquidity during the 2008 crisis, but that measure is set to lapse at the end of September.  At that point, the limit will not revert to the pre-crisis maximum of $417,000 in most of the country but to a level set in relation to local medians — and capped at $625,000.  But the Obama administration has supported a reversion to lower loan limits as the first step in gradually reforming the mortgage security market and reducing taxpayer exposure to Fannie and Freddie.  The administration’s goal is to lure cash-rich would-be mortgage securitizers back into the market, starting with the high end.  Treasury Secretary Timothy F. Geithner has described this as “crowding in” private capital, and it is the rare housing policy proposal that has enjoyed a measure of bipartisan support.”

Want to Buy a Toxic Asset? The Treasury Department Is Selling Them

Monday, April 18th, 2011

The Treasury Department is planning to sell $142 billion worth of toxic assets that it acquired during the financial crisis.  According to Treasury, it wants to sell approximately $10 million worth of assets every month, depending on market conditions and hopes to end the program next year.  Treasury acquired the securities — primarily 30-year, fixed-rate mortgage-backed securities guaranteed by Fannie Mae or Freddie Mac –between October, 2008 and December, 2009 to stabilize the home loan market.

The Treasury has decided to sell the securities now because the market has “notably improved.”  According to Treasury officials, the sale could net $15 billion to $20 billion in profits for taxpayers.  The sale will have a negligible impact on the U.S. debt limit but could delay the ceiling’s arrival by a few days.  In early March, Treasury estimated the U.S. would hit the $14.294 trillion ceiling between April 15 and May 31.  The Treasury in 2008 retained State Street Global Advisors, a leading institutional asset manager, to acquire, manage and dispose of the mortgage-backed securities portfolio.

“We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market, Mary Miller, assistant secretary for financial markets, said.  “We’re continuing to wind down the emergency programs that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort.”

Congress gave Treasury the authority to buy securities guaranteed by Fannie Mae and Freddie Mac.  The value of these mortgage-backed securities declined significantly after the housing bubble burst, prompting fears that write-downs could drag down individual banks and further plunge the financial system into panic.  The Treasury said that three years after the worst point of the crisis, the market for asset-backed derivatives is now much more robust.

The government bought $221 billion of these bonds, as part of the Housing and Economic Recovery Act of 2008.  Treasury announced that it would buy the bonds on the day the government took over Fannie and Freddie.  “The primary objectives of this portfolio will be to promote market stability, ensure mortgage availability, and protect the taxpayer,” Treasury said at the time.  The portfolio is now just $142 billion.  The Congressional Oversight Panel, which supervised the Troubled Asset Relief Program, said that as of February of 2011, Treasury had received $84 billion in principal repayments and $16.7 billion in interest on the securities it holds.

“It was a bit of a surprise, though will likely be easy to digest,said Tom Tucci, head of government bond trading at Capital Markets in New York.  “We spent a year and a half at levels that were unsustainable because they weren’t based on economic fundamentals, they were based on fear.  “Now some of the fundamentals are starting to come back into place.”

Republicans are asking for deeper cuts in government spending before they will agree to raise the debt limit.  Treasury Secretary Timothy Geithner has cautioned that failure to raise the borrowing limit would cause an unparalleled default by the government on the national debt.  Without question, this would drive up the government’s cost of borrowing money.

Goodbye to Fannie and Freddie

Wednesday, February 23rd, 2011

The Obama administration and the Treasury Department have decided that Fannie Mae and Freddie Mac — the public-private housing finance model in place for the past four decades – will come to an end, although they pledged to continue backing the agencies’ existing obligations. “The GSE (government-sponsored enterprise) model is dead,” an Obama administration official said.  The Treasury Department is currently working on three broad options for overhauling the mortgage lending system, but will let Congress make the final decision.  The government bailouts of Fannie and Freddie have cost taxpayers nearly $150 billion.

Obama administration officials have emphasized areas of agreement with Republicans, stressing that they favor a system that is less dependent on government support.  Approximately 90 percent of new mortgages are currently backed by Fannie, Freddie or other federal agencies.  The move pleased Republicans, who have long criticized the mortgage companies. “I’m encouraged to see the administration included a number of reform ideas that track closely with my own,” Representative Scott Garrett (R — NJ) said.  Garrett heads the House Financial Services subcommittee, which oversees Fannie and Freddie.  Representative Randy Neugebauer (R – TX), said he was pleasantly surprised by the focus on restoring the mortgage-backed securities market issued without the government’s guarantee.  Debate over the future of the mortgage giants is often contentious on Capitol Hill.  Republicans consistently criticized last year’s Dodd-Frank financial-overhaul bill for not addressing the fate of Fannie and Freddie.  Treasury Secretary Timothy Geithner said that winding down Fannie and Freddie and creating an alternative won’t happen overnight.  “Realistically, this is going to take five to seven years,” he said.  “We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market.”

The Treasury Department report suggests that Fannie and Freddie purchase loans with smaller outstanding balances, reducing their risk.  The report also recommends phasing in a requirement that Fannie and Freddie borrowers make larger downpayments — at least 10 percent.  Lastly, the government wants Fannie and Freddie to wind down their own mortgage investment portfolios.  In their heyday, Fannie and Freddie were public companies that encouraged home ownership thanks to a Congressional mandate.  The companies buy home loans from lenders, which use the money to offer new loans to consumers.

The bad news is that mortgage costs could increase a bit once Fannie and Freddie are phased out. “Over the long run, the cost of a mortgage will rise modestly for the average American homeowner,” Geithner said.  “We think it’s very important for the government to continue to play a role, a targeted role” to make certain that “Americans who need help to find a home, to rent a home, or own a home get that help.”

Nor will the process of replacing Fannie and Freddie be easy.  Writing in the Wall Street Journal, David Reilly points out that “A return of private capital requires the revival of securitization markets for mortgages not backed by the government since bank balance sheets aren’t big enough to fill the gap”.  But 30-year loans in their current form aren’t attractive to investors without a government guarantee. The Treasury implicitly acknowledges the conflict, noting that the less government backing there is for housing finance, the less feasible the 30-year mortgage becomes.  It also admits the reward for losing that benefit, and largely removing government from mortgage markets, would be a reduced incentive to invest in housing so that ‘more capital will flow into other areas of the economy, potentially leading to more long-run economic growth and reducing the inflationary pressure on housing assets.’  That should be the clear goal of any housing-finance revamp.”

Government Looking to Require CMBS Insurance

Tuesday, February 22nd, 2011

President Barack Obama is proposing an option to create an insurance fund for mortgage-backed securities, similar to the Federal Deposit Insurance Corporation that protects Americans savings accounts. The proposal consists of three legislative options for making long-term changes to the housing finance system, while taking short-term moves to gradually reduce the government’s role in the mortgage market now dominated by Fannie Mae and Freddie Mac.  The Obama administration is asking the private sector to play the leading role in the residential mortgage market and is expected to unveil several scenarios detailing how that might come about.

More than 85 percent of residential mortgages are now backed by the federal government.  Republicans want to slash that to zero, though they acknowledge that a transition so extreme cannot be achieved overnight.  At its core, the debate over what to do about Fannie and Freddie is an ideological one: How much should the government pay to sustain the housing market?  House Republicans, who want to abolish the government backing altogether, contend that the private market can more accurately price the risk of home mortgages.  By contrast, Democrats believe that government backing is necessary to assure that mortgages are accessible to middle-class Americans.  Mark Zandi, chief economist at Moody’s Analytics, said the impact would be approximately one percent.  “Regardless of what policymakers say, global investors will almost surely continue to believe the U.S. government would backstop a badly foundering mortgage finance system,” said Zandi, who has proposed a hybrid system that charges for the guarantee.

Meanwhile, Treasury Secretary Timothy Geithner has warned against acting too quickly or making rash changes.  “Given Fannie Mae and Freddie Mac’s current role in the mortgage market, we must proceed carefully with reform to ensure government support is withdrawn at a pace that does not undermine economic recovery,” he said.  “We believe there is sufficient funding to ensure the orderly and deliberate wind down of Fannie Mae and Freddie Mac, as described in our plan.

Geithner has proposed three options, all of which favor seeing the government eventually wind down Fannie and Freddie, whose survival has required more than $150 billion from the Treasury Department since the government seized them in September of 2008.  The first option would privatize mortgage finance and limit the government’s role to narrowly targeted subsidies, like Federal Housing Authority (FHA), USDA and Department of Veterans’ Affairs financing.  The second option adds a layer of government support that could be implemented to ensure access to credit during a housing crisis.  The third option, the one that bears the closest resemblance to the current system, would allow the government to guarantee mortgages but under stringent capital and oversight requirements, termed “catastrophic reinsurance behind significant private capital.”

The probable winners from replacing Fannie and Freddie are mortgage lenders and insurers, analysts at Goldman Sachs said. “While higher rates could decrease origination volumes, growth should still outpace balance-sheet availability,” the Goldman analysts said.  In addition to lenders, mortgage insurers are also potential beneficiaries.  “The stated goal of returning the (Federal Housing Authority) to its traditional role as a targeted lender of affordable mortgages supports the view for better-than-expected private market top-line growth.”

Despite the uncertainty about what entity will ultimately replace Fannie and Freddie, the Obama administration remains upbeat about the cost of winding down the embattled agencies. The administration expects its losses from Fannie and Freddie to ultimately be cut nearly in half.  However, the Treasury Department estimates that after receiving dividends from the GSEs (government-sponsored enterprises) for that assistance, the total losses could shrink to $73 billion by 2021 — 45 percent less than current levels.

An outspoken critic of the Obama plan is Mike Colpitts, who writes for The Housing Predictor.  According to Colpitts, “Like a solider standing alone in the battlefield, the Obama administration’s housing finance reform proposal offers the U.S. a way of ridding itself of the most troubled mortgage giants, Freddie Mac and Fannie Mae in the real estate collapse.  But it stops short of offering any concrete long term solutions with a housing plan for the nation like a lone soldier Missing In Action.  Realtors, mortgage professionals, new homebuilders and the lending industry compose many of the most fractured industries in the current U.S. economy as a result of the real estate collapse.  They deserve a plan on which they can rest their futures with the rest of America to benefit the entire nation, and for once provide concrete change towards a real economic recovery.”

Democrats, Republicans Butt Heads on Fed’s Quantitative Easing 2

Monday, February 21st, 2011

Federal Reserve Chairman Ben Bernanke is knocking heads with Representative Paul Ryan (R-WI), the new chairman of the House Budget Committee, about how to best control inflation while buying billions of dollars worth of Treasury bonds to build up the economy in a process called quantitative easing 2 (QE2). As the nation’s debt climbs to an unprecedented high level, President Obama is in the difficult position of having to forge an agreement with Congress on how high the legal cap on how much money the government can borrow will be.  The Republicans who now control Congress say they will consent to an increase in the cap only if President Obama agrees to make significant budget cuts. Ryan has been an outspoken opponent of the Fed’s stimulus policy, which is pumping $600 billion into the economy through purchases of long-term Treasuries.  He is concerned that the policy will accelerate inflation, create asset bubbles and reduce the dollar’s value.  “My concern is that the cost of the Fed’s current monetary policy…will come to outweigh the perceived benefits,” Ryan said. “We are already witnessing a sharp rise in a variety of key global commodities and basic material prices.”

Bernanke disagreed, saying “The inflation is taking place in emerging markets because that’s where the growth is.”  In the United States, he said, “overall inflation is still quite low and longer-term inflation expectations have remained stable.”  Bernanke pointed to growth in economies like China, India and Brazil as the real cause of rising prices.

Speaking in a different venue, Treasury Secretary Timothy Geithner expressed confidence that Congress ultimately will raise the debt limit.  “I can say this with complete confidence – that the U.S. will meet its obligations, that Congress will act as it always has to make sure we meet those obligations,” Geithner said.  “There’s always a little political theater around this.”

Democrats and Republicans remain sharply divided on the issue.  “It would be reckless from an economic and financial perspective…to essentially default on our debts and question the creditworthiness and full faith and credit of the United States, correct?” asked Representative Chris Van Hollen (D-MD) “Wouldn’t significant reductions or addressing the short-term spending aspect be good for the market and economy?” asked Representative Scott Garrett (R-NJ).

Representative Ron Paul (R-TX) and a Libertarian characterized Bernanke’s testimony as “cocky”. Paul, a 2008 presidential candidate who is a long-term critic of the Federal Reserve, now has a platform to air his views, thanks to the Republicans winning control of the House. As chairman of the House Domestic Monetary Policy and Technology Subcommittee, Paul called the hearing to examine the impact of the Fed’s policies on job creation and the unemployment rate.  Paul has advocated for measures that would review the Federal Reserve or even eliminate it.  Additionally, Paul slammed the Fed’s latest $600 billion bond-buying program, saying it and near-zero interest rates haven’t led to job creation in the United States.

Washington, D.C., Housing Market Shines in a Bleak Landscape

Thursday, January 13th, 2011

Washington, D.C., Housing Market Shines in a Bleak LandscapeAlthough the Washington, D.C., residential market has held up surprisingly well over the past few years in an environment hammered by unemployment and foreclosures,  there is a question of whether the nation’s capital will spur recovery or if the rest of the country will drag down the local market.  Washington’s relatively low unemployment rate and availability of well-paying jobs has helped cushion the city’s housing market.  During the 3rd quarter, the District of Columbia’s average home price rose 3.1 percent over the 2nd quarter to $410,839, according to Delta Associates, a real estate research firm.  That is 6.2 percent higher than average home prices during the 3rd quarter of 2009.  The region’s foreclosure rate as of September was 2.1 percent, according to CoreLogic.  Nationally, the foreclosure rate was 3.3 percent.

According to Mark Zandi, chief economist at Moody’s Analytics, more than 4 million homes were in or near foreclosure nationally in 2010.  That’s over and above the 6.2 million homes that were foreclosed between 2007 and 2010.  Those 10.2 million foreclosures equal the combined populations of Vermont and North Carolina.  Approximately 57 percent of economists and real estate experts surveyed by Macro Markets don’t think that home prices will recover until 2012; another 35 percent believe that real recovery won’t happen until 2013.

In recent testimony before the Congressional Oversight Panel, Treasury Secretary Timothy Geithner said that 24 percent of homes in the United States are under water – which puts their owners in the unenviable position of being unable to refinance or sell.  “The most important thing that’s going to affect the trajectory of home prices, the overall number of foreclosures, the ability of people to stay in their homes, is what the government is able to do to get the unemployment rate down,” Geithner said.

TARP’s Ultimate Tally Could Be Just $25 Billion

Thursday, December 16th, 2010

TARP’s Ultimate Tally Could Be Just $25 BillionThe estimated cost of the Troubled Asset Relief Program (TARP) keeps falling, according to the nonpartisan Congressional Budget Office (CBO).   The latest estimate is that TARP will cost the taxpayers just $25 billion – significantly less than the $700 billion allocated for the financial bailout in the fall of 2008.  The CBO’s last estimate – made in August – was that TARP would add up to a $66 billion loss, so the newest numbers represent a significant improvement.

This optimistic prediction is thanks to funds returned to the Treasury Department as banks repaid their loans and bought back stock warrants.  Another factor in the revised numbers is that less money than anticipated went to bailing out AIG and General Motors, the latter of which recently had an extremely successful initial public offering.  “Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low,” according to the CBO.  “At the time, the U.S. financial system was in a precarious position, and the transactions envisioned and ultimately undertaken through the TARP engendered substantial financial risk for the federal government.”

TARP was originally created so the government could buy toxic mortgage-backed securities from big banks.  Former Treasury Secretary Henry M. Paulson ultimately altered the program to infuse cash into banks and other companies that were likely to fail.  The majority of banks have repaid their loans; in fact, the federal government has made approximately $12 billion from those transactions.  Because the financial system was stabilized more quickly than originally anticipated, only $433 billion of the TARP fund was spent, which reduced the potential for losses, according to the CBO.  President Barack Obama and Treasury Secretary Timothy Geithner have hailed the revised projection as a sign that the extremely unpopular program was effective and not the corporate giveaway as some opponents have accused.