Haircuts And Downturns

By Big Tent Democrat, Section Economy
Posted on Thu Feb 24, 2011 at 12:54:33 PM EST
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3 stories for your consideration:

Obama Administration a year late and a lot of dollars short with haircuts for banks:

The Obama administration is trying to push through a settlement over mortgage-servicing breakdowns that could force America's largest banks to pay for reductions in loan principal worth billions of dollars. [. . .] Under the administration's proposed settlement, banks would have to bear the cost of all writedowns rather than passing them on to other investors. [. . . E]ven if banks agree to a $20 billion penalty, the number of mortgages that can be cured with that number is limited [. . .]

Goldman Sachs says budget cuts will significantly reduce economic growth:

[A] report by the investment firm Goldman Sachs said the [GOP proposed budget] cuts would reduce the growth in gross domestic product by up to 2 percentage points this year, essentially cutting in half the nation's projected economic growth for 2011.

The Deal was GREAT stimulus wasn't it? Yes, this is the natural course The Deal took us down. Instead of fighting about tax cuts for the rich, the Obama Administration chose spending cuts as the place to do political battle. A grievous mistake.

And jobless claims will go up again, after showing slight improvements this week.

Speaking for me only

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Haircuts And Downturns | 18 comments (18 topical)

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The Deal ensured that 'shared sacrifice' (5.00 / 1) (#4)
by ruffian on Thu Feb 24, 2011 at 02:03:39 PM EST

will only apply to people working directly for the government, as their jobs are axed and benefits slashed.

Sacrifice for the rest of us in the form of even progressive tax increases? Off the table. Just unbelievable from a Dem president.

Non progressive tax increases on low incomes (5.00 / 2) (#8)
by MO Blue on Thu Feb 24, 2011 at 03:05:58 PM EST

were not off the table. My federal taxes went up $31 per month on a retirement pension that is about 125% of the poverty level. This had nothing to do with make work pay. Apparently just a straight increase in taxes.


: Federal Taxes (none / 0) (#15)
by cal1942 on Thu Feb 24, 2011 at 11:13:52 PM EST

on my pension and my wife's pension also went up.
My pension is 52.5% of my pay before retirement.

Color me skeptical... (5.00 / 3) (#5)
by Anne on Thu Feb 24, 2011 at 02:28:21 PM EST

Marcy Wheeler's calling it "HAMP II."

Here's her take:

A day after the Case-Shiller Index confirmed that the housing market is in a double dip, the Powers that Be (a subsidiary of the Masters of the Universe, currently CEOed by one Barack Obama) have floated their proposal for a mortgage fraud settlement.

The settlement terms remain fluid, people familiar with the matter cautioned, and haven't been presented to banks. Exact dollar amounts haven't been agreed on by U.S. regulators and state attorneys general.
For the low, low price of $20 billion, the Administration proposes, banks could be excused for the abundant mortgage fraud they've committed.

Terms of the administration's proposal include a commitment from mortgage servicers to reduce the loan balances of troubled borrowers who owe more than their homes are worth, people familiar with the matter said. The cost of those writedowns won't be borne by investors who purchased mortgage-backed securities, these people said.
But basically, it sounds like HAMP II-a "plan" that still lets banks decide how to implement that "plan"-with the sole improvement on HAMP I that it requires 2nd Liens to be "reduced" (but not eliminated) in the process of modifying the first liens.

The deal wouldn't create any new government programs to reduce principal. Instead, it would allow banks to devise their own modifications or use existing government programs, people familiar with the matter said. Banks would also have to reduce second-lien mortgages when first mortgages are modified.
In short, it includes bailout within bailout (since 2nd liens should be eliminated).

Really, at this stage, with the massive failure of HAMP, someone thinks it's a good idea to let the banks maintain control over the modifications?

What's killing me is the knowledge that thousands of families are going to have their hopes raised again, and I'm not seeing any evidence that "this time" things will be different and people really will get help.

But I'm sure the banks will once again come out on top, smelling like...money.

Anne, of course (5.00 / 3) (#6)
by Zorba on Thu Feb 24, 2011 at 02:43:55 PM EST

"someone thinks it's a good idea to let the banks maintain control over the modifications." After all, with Timmy Geithner and the rest of the bank-friendly people in this administration, would you expect otherwise? Get with the program, girl. Big banks, big Wall Street companies=important. Regular people=not so much. (I'm so tired of being so skeptical, but I'm afraid I've not been given enough reason to be otherwise. Sigh.)


: Zorba, they don't even (5.00 / 2) (#12)
by NYShooter on Thu Feb 24, 2011 at 04:08:55 PM EST

deny that they're cheap whores for the banks. When a U.S. Senator stands up in the stench filled halls of the Senate and pronounces publicly, "They own this place," the game is over.
And, how did Obama, Geithner, and Holder respond? As always, averted their eyes, and "looked to the future."

The Goldman-Sachs report (5.00 / 0) (#7)
by lilburro on Thu Feb 24, 2011 at 02:50:53 PM EST

looks like good news to me. The Dems should be able to make hay out of it (not that they ever do).

Considering the cuts that are being (5.00 / 2) (#10)
by Anne on Thu Feb 24, 2011 at 03:22:11 PM EST

proposed on the Democratic side, I think this is not going to be so much an exercise in making hay, as it will be in dodging the whole people-who-live-in-glass-houses kind of thing; how do Dems rail about the consequences of GOP cuts and defend the consequences of their own?

Unless we are supposed to believe that the Dems' proposed cuts aren't going to hurt the economy in the same way the GOP's proposed cuts will?

I'd love to hear that explanation, lol.

I mean, come on...let's please stop kidding ourselves.


Anne... (5.00 / 1) (#16)
by inclusiveheart on Fri Feb 25, 2011 at 02:42:20 AM EST

You are incredibly astute, but what you are missing about the Goldman Sachs report is in some ways the most important aspect of the story. Obama has had all of these GS people and other big biz folks effectively directing his economic policy since he came into office. He has followed their lead on just about everything. Smaller stimulus, abandoning homeowners, abandoning Main Street and instead of focusing on jobs, infrastructure or green tech, he has been trained on the deficit for nearly two years. He did everything that the Wall Street economic "wizards" told him to do and this economy stinks - and continues to stink.

And I am sure you know that there are a couple of reasons why a partnership like Goldman Sachs would want to control everything in the first place - but may have sort of forgotten amid all of the other "noise".

First, controlling the market is key to their overall strategy. That means that if they take one of the biggest spenders like government under their wing, they've got tremendous clout and frankly say in what the market will do. The proverbial inside track. It is like owning the dealer at a casino, but better. Second, if they screw up they've also hedged their own bets on some level which means that not only do they own the dealer, but they are in some ways now the house and all the players at the table. To make matters worse - or better for Goldman Sachs - if they decide they aren't getting the max on the hands that they are playing all they have to do is change the game.

Someone at Goldman Sachs has decided that while the deficit game was really "fun", the reality of the spigot being turned off is not lucrative. So what do you do? Like the "deficit problem" before, the government ATM being emptied problem is "solved" by generating another report calling for attention to the "damage". At some level, there is also great concern for Main Street reflected in this analysis, but the great concern is about the lack of warm bodies with cash laying around that the government spending freezes and cuts will yield.

Goldman is simply admitting that they can't make as much money if the US Government does not spend; and that all those people on Main Street that they were so quick to abandon might be hard to live without.

Unless and until our political leadership divorces their decision-making process from the greedy whimsy of the investment class, we are pretty much never going to have sane economic policy in this country.


: The way that our GDP (5.00 / 1) (#17)
by Militarytracy on Fri Feb 25, 2011 at 05:46:05 AM EST

breaks down right now, I'm just about willing to bet that the financial sector is going to take the biggest hit in that figure that Goldman is whining about. I see on the investor websites now that the lack of any more dumb money in the markets now is greatly affecting the game. What's left now? The sharks begin to eat each other in some form or another.
And it is gross and disgusting having Goldman Sachs run the White House, biggest case of insider trading EVER!

: the comment I was responding to was (5.00 / 2) (#18)
by Anne on Fri Feb 25, 2011 at 08:11:38 AM EST

focused on the politics of the Goldman report, with the commenter musing that perhaps, since Goldman's negativity was directed at the GOP budget, somehow the Dems could make hay out of that.
If I'd had more time, I would have pointed out the disingenuousness of the report itself, the completely inappropriate and "insider" relationship between Goldman and the administration, and would have asked whether, in such circumstances, anyone could - or should - take that report at face value.
What I find kind of hilarious is the obviousness of Goldman's strategy, and the fact that they're trying to balance their insider relationship with their number one goal - making money. They want to say something that doesn't put the Democratic administration in a bad light, but they also are, as you say, admitting that they're not going to make money if the government doesn't spend.
They're all getting caught in their own strategy, and if it weren't for the fact that we are the ones who suffer the consequences of bad policy and bad decisions, I could be more amused, but we all know that having this turn out well for us and the country has taken a back seat to Obama's need to be re-elected and Goldman's - and the rest of Wall Street's - need to keep playing us for fools so they can keep raking in the dough.
Whole thing leaves me laughing and crying...

Sigh... (none / 0) (#14)
by lilburro on Thu Feb 24, 2011 at 07:04:05 PM EST

you are right. I had briefly, blessedly forgot about that bit of capitulation before I wrote my comment. Ugh.


And the FDIC told the banks (none / 0) (#1)
by Militarytracy on Thu Feb 24, 2011 at 01:37:41 PM EST

they must start making new loans and lending again for the economy to recover, but banks say that they can't make new loans until the economy recovers. It was always going to be like this, I don't know why anyone thought saving the banks from taking the defaults would save us of us or preserve our economy. It all led to destroying the economy on a much deeper level.

The banks aren't wrong (none / 0) (#2)
by Big Tent Democrat on Thu Feb 24, 2011 at 01:51:03 PM EST

They can't create demand.

The government can however.


Demand (5.00 / 4) (#11)
by NYShooter on Thu Feb 24, 2011 at 04:01:34 PM EST

had nothing to do with it. The banks stopped lending....period.

For 20 years my business, like most seasonal businesses, borrowed money at the beginning of the season for supplies. in my case, sealant & asphalt. For building contractors, lumber & steel. Farmers, seed.....

In spite of AAA rating, and 20 yr. relationship, my, and others like me, had credit lines eliminated. In talking to the bank manager he told me, "this morning you could have gotten anything you wanted; this afternoon, zero.

And, this is what I don't understand: even when there was demand, and the loans guaranteed, and with Givernment bailouts & loans, the banks themselves greatly excacerbated and prolonged the crisis.

Idiots!

Fools, criminals, and idiots!!


: Loaning to you guys doesn't make (5.00 / 1) (#13)
by Militarytracy on Thu Feb 24, 2011 at 04:26:23 PM EST

big money, it only makes simple smaller dull money in the new hopped up crazy world of making money banking. Playing with the stock market and all the complex investment vehicles leads to "books" that say you did really really good, and then you get a huge incomprehensible bonus AGAIN.

That is true (none / 0) (#3)
by Militarytracy on Thu Feb 24, 2011 at 02:03:33 PM EST

But don't you think that the still robust much more attractive shadow banking games plays a role too, and how they are all still using their liquidity to play in the markets instead of make small time loans? Mainstreet isn't fun anymore, the payout is small and the people aren't TBTF.


new law of economics (none / 0) (#9)
by diogenes on Thu Feb 24, 2011 at 03:18:20 PM EST

"banks would have to bear the cost of all writedowns rather than passing them on to other investors."

How exactly do banks do this? After all, they can't print money the way the federal government can.