Obamanation Re-election MegaThread

[NorthSideSox72]

2. That $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.

 

The above part is 100% nonsensical. It looks like it was written by a 19 year old philosophy major who recently started reading his first finance book.

 

[StrangeSox]

The above part is 100% nonsensical. It looks like it was written by a 19 year old philosophy major who recently started reading his first finance book.

 

It's by Yves Smith (Susan Webber)

 

can you give a quick summation of why it's completely nonsensical?

Edited February 9, 2012 by StrangeSox

[NorthSideSox72]

It's by Yves Smith (Susan Webber)

 

can you give a quick summation of why it's completely nonsensical?

Let's break it down...

 

That $26 billion is actually $5 billion of bank money and the rest is your money.

 

This is patently false. The author is trying to give a picture that the principal cram-downs and securitized loans are somehow not "bank money", but insstead is... your money? What? The principal owed on a mortgage is by no possible definition an asset of the borrower. It is either an asset of the bank, or an account payable item for the bank. How this author can say otherwise, in fact the opposite, with a straight face, is beyond me. And securitized loans? How is that anyone's money but the trading parties on the security?

 

 

The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors,

 

Whether they happen on securitized debt or not is, first of all, not directly related to the investment status of the loan recipient. The author is trying to characterize the people who securitized and bought/sold the debt are the people who also created the debt and hold the pegged asset. This is of course not the case.

 

Now, I will say, there is one aspect of this that I understand and somewhat agree with - by aiding the prinicipals within loans that are part of MBS's or the like, they are ALSO helping the firms that traded those instruments. But I fail to see how that is a bad thing, as they were abused by the mortgagors as well, so why shouldn't they also benefit?

 

which in turn means taxpayers via Fannie and Freddie,

 

This part is accurate, so I should not have characterized this writing as "100% nonsensical". It is only 80% nonsensical. We all knew, had to know, that since Fannie/Freddie caused part of the mess, their loans were going to end up taking part of this hit. Sort of has to be that way, unless you can think of an alternative.

 

pension funds, insurers, and 401 (k)s.

 

This is where the author really goes off the deep end. Insurers of what? If the author means companies like Allstate or State Farm, who happen to do financial investments as part of their portfolio, they I suppose it may effect them in some side manner. But they will already have traded out of any mortgage-related funds by now anyway. Pension funds and 401k's? Eh? I suppose if someone was putting their entire 401k in a Fannie or Freddie-based mortage debt fund - which very few people did even before and no one does now - then they might be effected. But this is not the theft of money as is being characterized, at all. This is the value of a mutual fund, one which made no sense to be in today anyway, being diminished. It is an investment loss. Same as if a company whose stock is somewhere in one of your mutual funds goes bankrupt. No one stole that money from you.

 

Refis of performing loans also reduce income to those very same investors.

 

Not really. First of all, if a loan is bundled into a security, the security has stipulations about the mortgages therein. First, if the mortgage defaults, you lose (in some form). Second, if the mortgage is SOLD - then it is typically either severed from the security because it is no longer the same underlier, or, the security specifies the involved risk of refinance. If the former, then this change has no effect on the holder of the MBS or other debt security. If the latter, then the risk was priced in at the time, and if that risk increased then tough s***, but the alternative is that you took on a bunch of defaults which is even worse. So really, this is not going to result in net material losses to these investors - it will result in an even play or may even protect them from some further losses.

 

[StrangeSox]

Settlement info by state

 

Why would you negotiate a settlement of massive, widespread national fraud before you do your investigations? Why is no one going to jail?

Edited February 9, 2012 by StrangeSox

[StrangeSox]

Would you mind if I passed that post on to Yves in an email?

[NorthSideSox72]

Settlement info by state

 

Why would you negotiate a settlement of massive, widespread national fraud before you do your investigations? Why is no one going to jail?

 

Well first, they did do some investigation. And this is a civil penalty settlement I believe, not a criminal one (though I admit that when it comes to federal litigation against corporations, I am not fully familiar with the sometimes-subtle line between those things). As for no one going to jail, if I am right, then that is a seperate step. The settlement may include some sort of criminal indemnity I suppose, I don't know, and I haven't read this new link yet.

 

Would you mind if I passed that post on to Yves in an email?

Um, I suppose. Just make sure you call me "internet poster", not by my full name, as I don't want to get published on someone's blog about this.

 

[StrangeSox]

It does not grant criminal immunity, that was more of a frustrated flail on my part.But the Obama admin has been even worse than the Bush admin at prosecuting any of these many cases of fraud. A lot of the stuff that the SEC would be able to investigate has already exceeded the statute of limitations, unfortunately. This whole mess will be a giant whitewash, with a slap on the wrist for banks literally lying in court to get people wrongly thrown out of their own homes. edit: some of the early formations of the agreement did have broad civil immunity and criminal immunity.

 

 

as for the other thing,

I can't find an email contact, only the ability to post a comment. I was curious what the response would be since I can't evaluate your counter-points myself.

Edited February 9, 2012 by StrangeSox

[NorthSideSox72]

It does not grant criminal immunity, that was more of a frustrated flail on my part.But the Obama admin has been even worse than the Bush admin at prosecuting any of these many cases of fraud. A lot of the stuff that the SEC would be able to investigate has already exceeded the statute of limitations, unfortunately. This whole mess will be a giant whitewash, with a slap on the wrist for banks literally lying in court to get people wrongly thrown out of their own homes. edit: some of the early formations of the agreement did have broad civil immunity and criminal immunity.

 

 

as for the other thing,

I can't find an email contact, only the ability to post a comment. I was curious what the response would be since I can't evaluate your counter-points myself.

 

So, I was thinking about this while eating lunch (because my life is just a maelstrom of excitement and fun), and I think I see a potential disconnect here. Perhaps the author is thinking that the $26B is actually a government funding to cover this thing. But I don't think that is the case. The money is coming from the banks. In fact, they are also paying a penalty TO the government of $750M, which should more than cover the cost of the investigation and proceedings. That's the only scenario I could think up where the points the author made, might make more sense.

 

[StrangeSox]

No, she's 100% aware that this money will be paid by the banks. Her contention is that it's going to be structured in a way that amounts to them unloading some bad debt and impacting people who have invested in those mortgages primarily instead of actually effecting BoA etc.

[Balta1701]

No, she's 100% aware that this money will be paid by the banks. Her contention is that it's going to be structured in a way that amounts to them unloading some bad debt and impacting people who have invested in those mortgages primarily instead of actually effecting BoA etc.

The issue probably comes in how exactly you bookkeep "Bad" debt here. If the banks are funding partial write-downs in mortgages that are well over the value of the home, then the banks are reducing the value of the debt they hold, but they're not necessarily losing money on the deal because it was likely that some of those underwater mortgages would go bad anyway.

[NorthSideSox72]

The issue probably comes in how exactly you bookkeep "Bad" debt here. If the banks are funding partial write-downs in mortgages that are well over the value of the home, then the banks are reducing the value of the debt they hold, but they're not necessarily losing money on the deal because it was likely that some of those underwater mortgages would go bad anyway.

Except some will not go bad, as a result of this... and furthermore, if those debts are going bad anyway, it still takes a bunch of money to foreclose. The banks win some and lose some here, same as the borrowers.

 

[Balta1701]

Wait...what?

The $25 billion settlement with banks over foreclosure abuses may trigger a wave of home seizures, inflicting short-term pain on delinquent U.S. borrowers while making a long-term housing recovery more likely.

[mr_genius]

was that the one where he spent 3 minutes trying to offer the person a job?

 

Balta, those 3 minutes were to ridicule the unemployed. it was all cruel sarcasm.

[mr_genius]

Wait...what?

 

Obama also slipped in a few billion for additional Wall Street bailout bonuses.

[NorthSideSox72]

Wait...what?

If you read the article, basically they are saying that the decrease in pace of foreclosures was a waiting game, which will now be released. Pent up actions is what they believe will cause the bump.

 

That said, I am not entirely sure that's true. I think part of the slow-down in foreclosure proceedings has been the result of more procedural caution, combined with an unwillingness to hire loads more staff for jobs that will be shed in a couple-few years. Those things aren't suddenly changing with this settlement being passed. I think any pickup in foreclosure pace will be small, which is both good and bad.

 

[StrangeSox]

If you read the article, basically they are saying that the decrease in pace of foreclosures was a waiting game, which will now be released. Pent up actions is what they believe will cause the bump.

 

That said, I am not entirely sure that's true. I think part of the slow-down in foreclosure proceedings has been the result of more procedural caution, combined with an unwillingness to hire loads more staff for jobs that will be shed in a couple-few years. Those things aren't suddenly changing with this settlement being passed. I think any pickup in foreclosure pace will be small, which is both good and bad.

 

 

aka "not committing willful and widespread fraud"

[NorthSideSox72]

aka "not committing willful and widespread fraud"

Well that is certainly the goal - or at least to stop breaking the laws surrounding that per se.

 

[Balta1701]

Well that is certainly the goal - or at least to stop breaking the laws surrounding that per se.

Well, that might be some people's goal. Getting away with fraud at a minimal cost is clearly the goal of others involved.

[Balta1701]

No, she's 100% aware that this money will be paid by the banks. Her contention is that it's going to be structured in a way that amounts to them unloading some bad debt and impacting people who have invested in those mortgages primarily instead of actually effecting BoA etc.

Just read a report which suggested that the loan writedowns resulting from this deal would be eligible for the HAMP program, according to administration statements. If that's true, then writedowns from these settlements would be paid back largely by the federal government.

[StrangeSox]

The above part is 100% nonsensical. It looks like it was written by a 19 year old philosophy major who recently started reading his first finance book.

 

PIMCO is saying this will hurt pensions a lot more than the banks:

 

http://www.moneynews.com/StreetTalk/pimco-...02/10/id/429048

 

“This was a relatively cheap resolution for the banks,” said Simon, the mortgage head at Pimco, which runs the world’s largest bond fund. “A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load.”

 

Edited February 13, 2012 by StrangeSox

[NorthSideSox72]

PIMCO is saying this will hurt pensions a lot more than the banks:

 

http://www.moneynews.com/StreetTalk/pimco-...02/10/id/429048

They are upset because the value of the funds which have mortgage securities in them - which by the way are a very small piece of the net 401k pie - are going to do down. Well, they already went down because people knew about the defaults that have been piling in for, oh, 5 years now. The bigger worry for fund houses is that those funds are going to become even less popular than they already are (they have fallen off a cliff anyway, this just accelerates the dive). Again, this was all going to be the case anyway, it is just accelerating the inevitable.

 

One thing it DOES illustrate though, is that people need to be aware what they hold in their 401k's. I suppose it is possible that some people have big chunks in privately-held debt-based funds, though after the last few years anyone who does is clearly just 100% tuned out of their investments. But even for them, this won't hurt them anymore than they already have been, or would have been.

 

[NorthSideSox72]

Just read a report which suggested that the loan writedowns resulting from this deal would be eligible for the HAMP program, according to administration statements. If that's true, then writedowns from these settlements would be paid back largely by the federal government.

I don't think so. HAMP is customer-requestor, not lien holder requested. And if the customer's loan was already written down, they don't need HAMP. So where are you getting this connection?

 

[Balta1701]

I don't think so. HAMP is customer-requestor, not lien holder requested. And if the customer's loan was already written down, they don't need HAMP. So where are you getting this connection?

At this point, all I can give you is blogs, of course, but here you go.

One of the recent changes to HAMP could reduce the cost of the settlement for banks—and leave taxpayers footing a chunk of the bill.

 

As part of [Thursday’s] deal, the five banks agreed to reduce billions in mortgage debt for homeowners in danger of foreclosure. Most of those principal reductions—about 85 percent according to Housing and Urban Development Secretary Shaun Donovan—will likely be for loans that the banks hold on their own books.

 

HAMP also has long offered investors incentives to encourage principal reductions. For loans owned by banks, the money goes right to them. In January, Treasury tripled those incentives. In cases in which a loan qualifies for HAMP, the government will now pay investors, often the banks themselves, up to roughly two-thirds the cost of a principal reduction.

 

The banks have agreed to perform at least $10 billion worth of principal reductions as part of the settlement. Because it’s unclear how many of the principal reduction modifications will be done through HAMP, it’s impossible to say how much of that will be covered by the government subsidies.

[NorthSideSox72]

At this point, all I can give you is blogs, of course, but here you go.

That still doesn't make sense.

 

First, if a bank makes a mortgage loan, they do not also hold the loan. They hold a lien. If they hold the asset and the loan, they both go away. There is no other way for it to work.

 

If they are saying, loans that a bank bought, they are still not the owner of the loan - they are the owner of the lien, just by a relation instead of directly.

 

If they are saying, banks who own securities with underlying loans, then they are STILL not the ones who owe money.

 

Maybe I am missing something here? But I see no scenario under which a bank can use HAMP this way, because I see no scenario under which a bank would OWE a mortgage loan. It just doesn't make any sense.

 

[Balta1701]

I think you're overthinking it.

 

The Bank hypothetically is the lender in these cases. They have lent money to buy assets which have decreased significantly in value. The settlement involves them writing down some portion of that value, taking the losses on those loans. The HAMP program paid banks to do exactly that, offering incentives to write down some portion of the value of those loans. The HAMP program did not involve payments to the borrowers, that'd be socialism, the HAMP payments went to the lenders or people who owned the loan, not to the borrowers/people who owned the asset.