Financial News

[bmags]

It was in the 1880's and 90's.

 

when gold was bad and SILVER was GOLD

[Balta1701]

Multiple sources, most of them currently blogs, are reporting this is happening. This is entirely consistent with what Moody's said last month, when they said they'd consider dropping the status of U.S. bonds if no deal was made by mid-July (pauses so you can recheck your calendar).

Moody's Investors Service has placed the Aaa bond rating of the government of the United States on review for possible downgrade given the rising possibility that the statutory debt limit will not be raised on a timely basis, leading to a default on US Treasury debt obligations. On June 2, Moody's had announced that a rating review would be likely in mid July unless there was meaningful progress in negotiations to raise the debt limit.

 

In conjunction with this action, Moody's has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the US government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks. We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the US government or the affected financial institutions.

 

RATIONALE FOR REVIEW

 

The review of the US government's bond rating is prompted by the possibility that the debt limit will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes.

 

As such, there is a small but rising risk of a short-lived default.

 

Moody's considers the probability of a default on interest payments to be low but no longer to be de minimis. An actual default, regardless of duration, would fundamentally alter Moody's assessment of the timeliness of future payments, and a Aaa rating would likely no longer be appropriate. However, because this type of default is expected to be short-lived, and the expected loss to holders of Treasury bonds would be minimal or non-existent, the rating would most likely be downgraded to somewhere in the Aa range.

 

Edit: Here's a 2 line blurb from Bloomberg just in case you don't believe the Blogs hosting the statement.

[StrangeSox]

WHY WON'T OBAMA WORK WITH REPUBLICANS AND COMPROMISE?!?!!!

[Balta1701]

WHY WON'T OBAMA WORK WITH REPUBLICANS AND COMPROMISE?!?!!!

Got to think this is going to make tomorrow a horrible day to be an investor.

[StrangeSox]

Got to think this is going to make tomorrow a horrible day to be an investor.

 

Well at least the bottom 50% of Americans who have little to no investment holdings won't be hurt.

[StrangeSox]

USA Today and the WSJ carrying Moody's statement now

 

http://content.usatoday.com/communities/on...ble-downgrade/1

[Balta1701]

Well at least the bottom 50% of Americans who have little to no investment holdings won't be hurt.

A huge dropoff in the dollar would be real bad for them though in this job market, since their purchasing power would take a major hit (this move would drive the bad type of inflation, inflation happening at the same time wages are stagnant or decreasing and there is large unemployment).

 

That won't happen yet though. That doesn't happen unless the default actually happens. This will scare people who are investors...people who are obviously starting to get nervous about the Republicans here (see: the large list of business signees today who sent a letter to Congress basically saying "Get the thing raised".)

[southsider2k5]

A huge dropoff in the dollar would be real bad for them though in this job market, since their purchasing power would take a major hit (this move would drive the bad type of inflation, inflation happening at the same time wages are stagnant or decreasing and there is large unemployment).

 

That won't happen yet though. That doesn't happen unless the default actually happens. This will scare people who are investors...people who are obviously starting to get nervous about the Republicans here (see: the large list of business signees today who sent a letter to Congress basically saying "Get the thing raised".)

 

I see you have finally come around on the destruction of the dollar.

[Balta1701]

I see you have finally come around on the destruction of the dollar.

Depends on what's driving it. Price inflation combined with wage deflation is a bad thing. That's what this would be. Inflation pushed by wages would be a spectacularly good thing.

[StrangeSox]

Still having the fight the myth that Fannie and Freddie caused the housing crisis

 

[Jenksismyhero]

Still having the fight the myth that Fannie and Freddie caused the housing crisis

 

 

I still blame the government for perpetuating the myth that EVERYONE should own a home and actively pushing banks to lend out more and more money to people that probably shouldn't have taken out loans to begin with. That obviously doesn't excuse the asshole bankers/lenders that took advantage of people, but it played a really big part.

[StrangeSox]

I still blame the government for perpetuating the myth that EVERYONE should own a home and actively pushing banks to lend out more and more money to people that probably shouldn't have taken out loans to begin with. That obviously doesn't excuse the asshole bankers/lenders that took advantage of people, but it played a really big part.

 

I'm pretty sure that narrative doesn't jive with numerous official & non-partisan analyses of what happened. But my understanding is based largely on the Planet Money/This American Life broadcasts they've done over the past several years now.

 

edit from the article linked above:

It is of course well known, including by their regulator, the Federal Housing Finance Agency, that Fannie and Freddie were responsible for some actual high-risk loans, primarily through their purchases of high-risk private-label securities for their investment portfolio as well as through purchases of actual high-risk loans for their core securitization business. Yet as Wallison knows, this actual high-risk activity by Fannie and Freddie was neither sufficient in volume nor did it come at the right time to persuasively argue that the two mortgage finance giants drove the surge in actual high-risk lending we saw in the 2000s.

 

Did Fannie and Freddie buy high-risk mortgage-backed securities? Yes. But they did not buy enough of them to be blamed for the mortgage crisis.[ii] Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.[iii]

 

Indeed, it is noteworthy that Wallison’s fellow Republicans on the Financial Crisis Inquiry Commission—Bill Thomas, Keith Hennessey, and Douglas Holtz-Eakin, all of whom are staunch conservatives—rejected Wallison’s argument as well.

Edited July 14, 2011 by StrangeSox

[Balta1701]

I'm pretty sure that narrative doesn't jive with numerous official & non-partisan analyses of what happened. But my understanding is based largely on the Planet Money/This American Life broadcasts they've done over the past several years now.

He's quite correct that the government actively promoted having the banks give loans to people who otherwise couldn't have afforded loans.

 

Problem is...those loans are still in relatively decent shape. Here's a year old graph on the FHA loan deliquency rate. These are people who otherwise would never have been able to get a loan. Compared to the 30% rate shown above, the tick from 4 to 6 % here isn't bad at all. FHA loans have massively outperformed subprime.

 

[southsider2k5]

Still having the fight the myth that Fannie and Freddie caused the housing crisis

 

 

The partisan parsing of this issue to make it look better is ridiculous. The government built an entity to encourage and reward risky behavior, and then seemed upset that banks did exactly what banks do, and tried to make money. No matter how you dress this pig, it is still a big at the end of the day. Instead of being forced to be accountable for the loans that they made, banks had a place to dump them off, with no risk to them. As long as these institution exist, the base problem here has not been solved.

[StrangeSox]

The partisan parsing of this issue to make it look better is ridiculous. The government built an entity to encourage and reward risky behavior, and then seemed upset that banks did exactly what banks do, and tried to make money. No matter how you dress this pig, it is still a big at the end of the day. Instead of being forced to be accountable for the loans that they made, banks had a place to dump them off, with no risk to them. As long as these institution exist, the base problem here has not been solved.

 

this doesn't jive with numerous official and non-partisan reports:

 

It is of course well known, including by their regulator, the Federal Housing Finance Agency, that Fannie and Freddie were responsible for some actual high-risk loans, primarily through their purchases of high-risk private-label securities for their investment portfolio as well as through purchases of actual high-risk loans for their core securitization business. Yet as Wallison knows, this actual high-risk activity by Fannie and Freddie was neither sufficient in volume nor did it come at the right time to persuasively argue that the two mortgage finance giants drove the surge in actual high-risk lending we saw in the 2000s.

 

Did Fannie and Freddie buy high-risk mortgage-backed securities? Yes. But they did not buy enough of them to be blamed for the mortgage crisis.[ii] Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.[iii]

 

Indeed, it is noteworthy that Wallison’s fellow Republicans on the Financial Crisis Inquiry Commission—Bill Thomas, Keith Hennessey, and Douglas Holtz-Eakin, all of whom are staunch conservatives—rejected Wallison’s argument as well.

Edited July 14, 2011 by StrangeSox

[Balta1701]

Instead of being forced to be accountable for the loans that they made, banks had a place to dump them off, with no risk to them.

They didn't dump them off onto FNMA or FDMC though, they dumped the bad ones off onto other investors who wanted MBS, and then eventually onto the Federal Reserve.

[southsider2k5]

They didn't dump them off onto FNMA or FDMC though, they dumped the bad ones off onto other investors who wanted MBS, and then eventually onto the Federal Reserve.

 

They dumped plenty on them, or those entities wouldn't have failed.

[Y2HH]

Or we can just put it in a more sensible way...

 

Are Fannie and Freddie the sole cause of this mess? No.

 

But they helped, along with many other government arms, private banks, lending institutions, etc...all in conjunction with one another. They're all to blame, in part...we can look at it from multiple angles and say no one entity is the singular cause, but what's the point?

 

People were buying homes with ARM mortgages and the banks / institutions HAD TO KNOW that when these ARMS started inflating, they wouldn't be able to afford them, nor would they be able to refinance due to their already high risk factor. They didn't care. They got their commission...what happened 5+ years down the road wasn't their concern...

 

That is, until it became everyone's concern.

[NorthSideSox72]

Or we can just put it in a more sensible way...

 

Are Fannie and Freddie the sole cause of this mess? No.

 

But they helped, along with many other government arms, private banks, lending institutions, etc...all in conjunction with one another. They're all to blame, in part...we can look at it from multiple angles and say no one entity is the singular cause, but what's the point?

 

People were buying homes with ARM mortgages and the banks / institutions HAD TO KNOW that when these ARMS started inflating, they wouldn't be able to afford them, nor would they be able to refinance due to their already high risk factor. They didn't care. They got their commission...what happened 5+ years down the road wasn't their concern...

 

That is, until it became everyone's concern.

I approve this message.

 

[southsider2k5]

Bernanke is stepping away from QE3 in front of Congress, saying it might not even be effective.

[StrangeSox]

They dumped plenty on them, or those entities wouldn't have failed.

 

But not enough to have a meaningful impact or to be able to claim that Fannie/Freddie/CHA were primary drivers of the bubble.

[StrangeSox]

But they helped, along with many other government arms, private banks, lending institutions, etc...all in conjunction with one another. They're all to blame, in part...we can look at it from multiple angles and say no one entity is the singular cause, but what's the point?

 

Well, the point of that article was to refute the myth that some conservatives keep perpetuating that it was all Big Government's fault thanks to Freddie and Fannie and the CHA and the poor banks just went along with it. The article doesn't attempt to absolve FMAC from taking on too much unnecessary risk.

[southsider2k5]

But not enough to have a meaningful impact or to be able to claim that Fannie/Freddie/CHA were primary drivers of the bubble.

 

You can make the numbers look however you want them to look. The federal government isn't about to sell the federal government down the river. To me it is the same thing as having a druggie kid that keeps getting bailed out after making bad decisions. Why would the behavior change without the money stopping?

[bmags]

wish I had stock in spotify.com. This is so awesome.

 

quick edit: perhaps secondshare.

Edited July 14, 2011 by bmags

[StrangeSox]

You can make the numbers look however you want them to look. The federal government isn't about to sell the federal government down the river. To me it is the same thing as having a druggie kid that keeps getting bailed out after making bad decisions. Why would the behavior change without the money stopping?

 

Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.[iii]

 

You need evidence to back up claims, otherwise you're just arguing over theology. You're going down the "data is meaningless" solipsism route because the majority doesn't agree with the idea that FMAC/CHA are to blame.

 

Why do so many independent and non-partisan studies reject this claim? Why do those making it have to play with the numbers very heavily in order to make their case?