Financial News

[Y2HH]

They used some of the same reasons I have been stating in here.

 

So let's have a theoretical discussion here... let's say the economy does indeed pick up steam during the next 6 months or so. What are the political ramifications? It helps Obama, but what about Congressional GOp'ers and/or Dems?

 

It helps whoever is in office.

 

For this cycle, it would mean it favors republicans in the house of congress.

 

It favors democrats in the senate and in for the presidency.

 

In other words, anyone that's up for re-election, will probably get re-elected.

[southsider2k5]

They used some of the same reasons I have been stating in here.

 

So let's have a theoretical discussion here... let's say the economy does indeed pick up steam during the next 6 months or so. What are the political ramifications? It helps Obama, but what about Congressional GOp'ers and/or Dems?

 

Quite honestly, unless the housing market recovers significantly, it is a classic bubble. This problem was caused by the housing/banking crisis. By and large that hasn't been fixed yet. Banks still have tons of bad loans on their books, and aren't able to lend at rates anywhere near sustaining a recovery. Without banks healthy, growth isn't going to be sustainable.

[Balta1701]

Quite honestly, unless the housing market recovers significantly, it is a classic bubble. This problem was caused by the housing/banking crisis. By and large that hasn't been fixed yet. Banks still have tons of bad loans on their books, and aren't able to lend at rates anywhere near sustaining a recovery. Without banks healthy, growth isn't going to be sustainable.

(Which, you'll note, some of us were saying was the inevitable result of keeping the banks alive in early 2009 rather than seizing them and just eating the losses).

[southsider2k5]

(Which, you'll note, some of us were saying was the inevitable result of keeping the banks alive in early 2009 rather than seizing them and just eating the losses).

 

(which of course is exactly what the left is trying to do by forcing banks to keep bad debts on their books)

[NorthSideSox72]

Quite honestly, unless the housing market recovers significantly, it is a classic bubble. This problem was caused by the housing/banking crisis. By and large that hasn't been fixed yet. Banks still have tons of bad loans on their books, and aren't able to lend at rates anywhere near sustaining a recovery. Without banks healthy, growth isn't going to be sustainable.

 

It may not be sustainable, but its not a bubble, not in my view. Bubble means not only that its hyper-inflated (which neither the markets or the greater economy are at this point), but that its propped up by fakery or non-real values of some kind. That's not the case here.

 

Banks have been getting healthier for some time now, so I'm not overly concerned about them or their role at this point in the greater scope of economic growth. Yes, there is the mortgage underwriting problem, which will bite some people, but I think we're already seeing its not going to be the epic disaster that some feared. Yes, the need for regulation is still there, as some holes still are exploited. But overall, the sector is much healthier than it was a year ago, or 2 years ago.

 

[Balta1701]

(which of course is exactly what the left is trying to do by forcing banks to keep bad debts on their books)

Wait, when did we want them to do this?

[southsider2k5]

It may not be sustainable, but its not a bubble, not in my view. Bubble means not only that its hyper-inflated (which neither the markets or the greater economy are at this point), but that its propped up by fakery or non-real values of some kind. That's not the case here.

 

Banks have been getting healthier for some time now, so I'm not overly concerned about them or their role at this point in the greater scope of economic growth. Yes, there is the mortgage underwriting problem, which will bite some people, but I think we're already seeing its not going to be the epic disaster that some feared. Yes, the need for regulation is still there, as some holes still are exploited. But overall, the sector is much healthier than it was a year ago, or 2 years ago.

 

Banks are vital to economic growth. They have to be healthy to sustain growth. Until the real estate prices rebound enough to free up lending again, it isn't going to happen.

[NorthSideSox72]

Also, the housing market is indeed healing. New construction numbers dropped off a cliff and have stayed low, which is good. Housing inventory numbers have been more or less stable for a while, which isn't great, but they haven't had a rising trend in a while now. Foreclosure pace has slowed (even before the paperwork issues), but the banks are doing exactly what is ideal here (intentionally or not) - smoothing the pace of them reaching the market. This is being helped along by opportunistic REO's and the like, where some profits are actually being made. Prices on homes continue to fall as they needed to (and resisted for some time), and lately seem to have been bouncing around a line, which is good.

 

Basically, the housing market is delicate and weak, but no longer falling off the cliff.

 

[southsider2k5]

Wait, when did we want them to do this?

 

Stopping foreclosures as much as possible.

[Balta1701]

Banks are vital to economic growth. They have to be healthy to sustain growth. Until the real estate prices rebound enough to free up lending again, it isn't going to happen.

There's no good reason to expect any sort of long-term "rebound" in real estate prices though. Pre-this bubble, real estate prices had in most places quite tightly tracked the inflation rate; that's sort of the long-term real estate market. If real estate prices tried to rise above it, you'd get more building and that would push prices back down, on average.

 

Real estate shouldn't be the kind of market that can "rebound", real estate should be a steady, long-term, fairly safe investment.

[NorthSideSox72]

Banks are vital to economic growth. They have to be healthy to sustain growth. Until the real estate prices rebound enough to free up lending again, it isn't going to happen.

As I said, they are healthy, and the numbers the last few quarters bear that out. Smaller banks are going under and being gobbled up by bigger ones, and the bigger ones have been making very good money. And real estate prices are being helped along by REO's that are often divisions of those banks anyway. Prices seem to be bouncing around a line that, according to people in the industry, now reflects something close to true value, or maybe slightly under. The market is by no means strong, but its gotten pretty stable, and growth should be next up.

 

[southsider2k5]

As I said, they are healthy, and the numbers the last few quarters bear that out. Smaller banks are going under and being gobbled up by bigger ones, and the bigger ones have been making very good money. And real estate prices are being helped along by REO's that are often divisions of those banks anyway. Prices seem to be bouncing around a line that, according to people in the industry, now reflects something close to true value, or maybe slightly under. The market is by no means strong, but its gotten pretty stable, and growth should be next up.

 

They aren't "healthy". Profits are irrelevant to the health of a bank. They are making money because they are able to get deposits are articicially low rates, while lending at much higher rates. The problem is that doesn't change the debt loads they are carrying from the real estate collapse, or the negative values which are tying up more capital that can't be lent.

[southsider2k5]

There's no good reason to expect any sort of long-term "rebound" in real estate prices though. Pre-this bubble, real estate prices had in most places quite tightly tracked the inflation rate; that's sort of the long-term real estate market. If real estate prices tried to rise above it, you'd get more building and that would push prices back down, on average.

 

Real estate shouldn't be the kind of market that can "rebound", real estate should be a steady, long-term, fairly safe investment.

 

Exactly. And for better or for worse, the banks are married to the rebound.

[Balta1701]

Exactly. And for better or for worse, the banks are married to the rebound.

Doesn't that essentially mean that they're screwed forever, or at least until we can inflate a bubble in something else to offset?

[Y2HH]

Real estate shouldn't be the kind of market that can "rebound", real estate should be a steady, long-term, fairly safe investment.

 

It was, for a long time, and then the bubble occurred. And when I say bubble, I mean when the great housing/lending scam. It will be a long lonnnnng time before it gets back on track due to the things they did in that industry.

 

They found a way to sell the American dream, if you will.

 

The problem was/is, that "dream" was never meant to be for "sale".

Edited November 9, 2010 by Y2HH

[NorthSideSox72]

They aren't "healthy". Profits are irrelevant to the health of a bank. They are making money because they are able to get deposits are articicially low rates, while lending at much higher rates. The problem is that doesn't change the debt loads they are carrying from the real estate collapse, or the negative values which are tying up more capital that can't be lent.

 

Profits are very relevant to the health of banks. Where are you getting the idea they aren't? I think you are just using hyperbole to prove a point here... what's true is that a good profit does not mean necessarily that a bank is health overall. But its also true that profitability is helpful and a sign of strength in at least some business units.

 

The banks are lending less, and lending to more high quality candidates. This is exactly the kind of build-up they need to restore the quality of their debt loads. So yes, their debt loads are indeed changing - foreclosures come in and are written off, debt is replaced by healthier candidates, and oh by the way the REO's take the artificial profit out of the market and keep it in house to help offset some of the foreclosure losses (don't start Balta - this is still a losing game, they're just taking some of the loss back).

 

Also, the capital pumps into the market have allowed banks to inflate their assets both directly and indirectly.

 

Exactly. And for better or for worse, the banks are married to the rebound.

 

No one with half a brain cell is expecting some big jump in the real estate market. There will be small rebounds along the way of course, but just as you and Balta are saying, a healthy market sees steady growth, and the market hasn't even gotten to that point yet. Its at a point of general stability, and slow growth should in theory be next.

 

[Balta1701]

Profits are very relevant to the health of banks. Where are you getting the idea they aren't? I think you are just using hyperbole to prove a point here... what's true is that a good profit does not mean necessarily that a bank is health overall. But its also true that profitability is helpful and a sign of strength in at least some business units.

 

The banks are lending less, and lending to more high quality candidates. This is exactly the kind of build-up they need to restore the quality of their debt loads. So yes, their debt loads are indeed changing - foreclosures come in and are written off, debt is replaced by healthier candidates, and oh by the way the REO's take the artificial profit out of the market and keep it in house to help offset some of the foreclosure losses (don't start Balta - this is still a losing game, they're just taking some of the loss back).

 

Also, the capital pumps into the market have allowed banks to inflate their assets both directly and indirectly.

I have to say, I really have no idea why I was called out here. I think you're basically arguing that the banks are taking profits and only lending to high-quality lenders, so that on balance their overall debt picture is actually safer...which I think is probably a good thing and which is a statement I'd probably agree with. Am I missing something? What point did you expect me to make here?

[NorthSideSox72]

I have to say, I really have no idea why I was called out here. I think you're basically arguing that the banks are taking profits and only lending to high-quality lenders, so that on balance their overall debt picture is actually safer...which I think is probably a good thing and which is a statement I'd probably agree with. Am I missing something? What point did you expect me to make here?

From our previous discussions, I got the impression you were thinking the banks were actually making a profit from foreclosures, which just isn't the case. I didn't want you to grab onto the point about REO divisions making money (which they do), and think that meant that banks were making money from the foreclosure process. They are losing money, just trying to cut those losses. That's all I meant. Sorry if I made a bad assumption, or if I misunderstood you.

 

[southsider2k5]

Profits are very relevant to the health of banks. Where are you getting the idea they aren't? I think you are just using hyperbole to prove a point here... what's true is that a good profit does not mean necessarily that a bank is health overall. But its also true that profitability is helpful and a sign of strength in at least some business units.

The banks are lending less, and lending to more high quality candidates. This is exactly the kind of build-up they need to restore the quality of their debt loads. So yes, their debt loads are indeed changing - foreclosures come in and are written off, debt is replaced by healthier candidates, and oh by the way the REO's take the artificial profit out of the market and keep it in house to help offset some of the foreclosure losses (don't start Balta - this is still a losing game, they're just taking some of the loss back).

 

Also, the capital pumps into the market have allowed banks to inflate their assets both directly and indirectly.

 

 

 

No one with half a brain cell is expecting some big jump in the real estate market. There will be small rebounds along the way of course, but just as you and Balta are saying, a healthy market sees steady growth, and the market hasn't even gotten to that point yet. Its at a point of general stability, and slow growth should in theory be next.

 

A bank can make a significant profit, and still be insolvent. We saw that many times during 2008 and 2009.

[NorthSideSox72]

A bank can make a significant profit, and still be insolvent. We saw that many times during 2008 and 2009.

Which is basically what I just said.

 

You are saying profits are meaningless to the health of a bank, and that is just not true. What I think you mean is, a bank can make a profit and still be unhealthy. Do you not see the difference I am getting at here? Profits are good, they help banks, but that does not mean profitability = health.

 

[Cknolls]

Which is basically what I just said.

 

You are saying profits are meaningless to the health of a bank, and that is just not true. What I think you mean is, a bank can make a profit and still be unhealthy. Do you not see the difference I am getting at here? Profits are good, they help banks, but that does not mean profitability = health.

 

A lot of the 3rd qtr earnings were dure to lower loan cost provisions. I do not believe banks have even started to address the CRE loans on their sheets. If they did, you would see foreclosures up the yin yang and we just do not see it. Home equity loans are an albatross on the banks balance sheets too. And they own the majority of them, unlike mortgages.

[Cknolls]

If I had to pick a bank to short, BAC would be numero uno. I think we see an 8 handle before a 15 handle.

[Y2HH]

If I had to pick a bank to short, BAC would be numero uno. I think we see an 8 handle before a 15 handle.

 

I bought them at 6.

[NorthSideSox72]

A lot of the 3rd qtr earnings were dure to lower loan cost provisions. I do not believe banks have even started to address the CRE loans on their sheets. If they did, you would see foreclosures up the yin yang and we just do not see it. Home equity loans are an albatross on the banks balance sheets too. And they own the majority of them, unlike mortgages.

CRE? Sorry, I'm not familiar with that acronym.

 

[Balta1701]

CRE? Sorry, I'm not familiar with that acronym.

"Commercial Real Estate".