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Financial Crisis News 02-23-09

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  • Robert Sterling
    Please send as far and wide as possible. Thanks, Robert Sterling Editor, The Konformist http://www.konformist.com http://robalini.blogspot.com
    Message 1 of 1 , Feb 23, 2009
      Please send as far and wide as possible.

      Robert Sterling
      Editor, The Konformist


      Bank nationalisation gains ground with Republicans
      By Edward Luce and Krishna Guha
      February 17 2009

      Long regarded in the US as a folly of Europeans, nationalisation is
      gaining rapid acceptance among Washington opinion-formers – and not
      just with Alan Greenspan, former Federal Reserve chairman. Perhaps
      stranger still, many of those talking about nationalising banks are

      Lindsey Graham, the Republican senator for South Carolina, says that
      many of his colleagues, including John McCain, the defeated
      presidential candidate, agree with his view that nationalisation of
      some banks should be "on the table".

      Mr Graham says that people across the US accept his argument that it
      is untenable to keep throwing good money after bad into institutions
      such as Citigroup and Bank of America, which now have a lower net
      value than the amount of public funds they have received.

      "You should not get caught up on a word [nationalisation]," he told
      the Financial Times in an interview. "I would argue that we cannot be
      ideologically a little bit pregnant. It doesn't matter what you call
      it, but we can't keep on funding these zombie banks [without gaining
      public control]. That's what the Japanese did."

      Barack Obama, the president, who has tried to avoid panicking
      lawmakers and markets by entertaining the idea, has moved more
      towards what he calls the "Swedish model" – an approach backed
      strongly by Mr Graham. In the early 1990s Sweden nationalised its
      banking sector then auctioned banks having cleaned up balance
      sheets. "In limited circumstances the Swedish model makes sense for
      the US," says Mr Graham.

      Mr Obama last weekend made clear he was leaning more towards the
      Swedish model than to the piecemeal approach taken in Japan, which
      many would argue is the direction US public policy appears to be

      "They [the Japanese] sort of papered things over," Mr Obama
      said. "They never really bit the bullet? - and so you never got
      credit flowing the way it should have, and the bad assets in their
      system just corroded the economy for a long period of time."

      Administration officials acknowledge that the rescue plan unveiled by
      Tim Geithner, Treasury secretary, last week could result in the
      temporary nationalisation of some weak banks.

      The plan sets out a framework for revealing the extent of the likely
      credit losses facing banks. Most private sector analysts believe the
      exercise will reveal that some banks have large capital shortfalls.

      Policymakers acknowledge that if this is indeed the case, it will be
      difficult for those with the largest shortfalls to raise the required
      equity from the markets, in which case the government would probably
      have to take temporary control. Moreover, while nationalisation
      remains taboo in some political circles it is increasingly openly
      discussed among past and present economic policymakers of all

      "In this country nationalisation of some banks – not the whole
      banking sector – should be a last resort, but it should definitely
      now be on the table," said David Walker, head of the pro-free market
      Peterson Institute and a former senior official in the George W. Bush

      The time for biting the bullet may also be fast approaching.

      In early April, big institutions will publish their first-quarter
      results. If the intervening Treasury stress tests have not by then
      revealed the true state of their balance sheets, then their first-
      quarter results may do so.

      "The first week in April – that's when the children's party is over,"
      says Chris Whalen, co-founder of Institutional Risk Analytics. "That
      is when the obvious will become apparent."

      The Obama administration remains opposed to federal control. Mr
      Geithner last week said: "Governments are terrible managers of bad

      Others say he may eventually face no choice. "The danger we face is a
      Freddie Mac/Fannie Mae scenario where government gives the banking
      sector guarantees and then socialises the losses," says Adam Posen,
      an economist. "That's the worst thing we could do."



      Obama Sets $75 Billion Mortgage Rescue Plan
      The "backyard bailout" proposal aims to help up to 9 million at-risk
      homeowners refinance or restructure mortgages
      By Phil Mintz
      February 18, 2009

      President Barack Obama on Feb. 18 announced a plan to stabilize the
      faltering housing market by allowing up to 9 million families to
      refinance or restructure at-risk mortgages through a $75
      billion "homeowner stability initiative" and other incentives to keep
      homes out of foreclosure.

      Obama is selling the plan—already being dubbed a "backyard bailout"—
      by stressing that foreclosures have a huge impact on entire
      communities and reduce the price of all homes.

      How It Works

      According to a fact sheet distributed by the White House, the plan,
      which Obama outlined in a speech in Mesa, Ariz., has three main

      • Allowing up to 5 million homeowners who have seen the value of
      their homes decline to refinance mortgages through the government-
      sponsored mortgage entities Fannie Mae or Freddie Mac

      • A $75 billion fund that would assist up to 4 million home owners to
      modify subprime mortgage loans so that payments would be no more than
      31% of household income and incentive payments to servicers to
      successfully modify mortgages

      • Shoring up market confidence in Fannie Mae and Freddie Mac by
      doubling the government's investment in the companies to $200 billion
      each and increasing the size of their retained mortgage portfolios.

      Obama also expressed support for a change in bankruptcy rules that
      would allow judges to modify first-mortgages held by defaulting
      homeowners. Such modifications are currently only allowed for
      mortgages on multifamily homes, vacation houses, and investment
      properties. The financial services industry has been opposed to
      the "cramdown" proposals.

      In Arizona—one of the areas of the country hardest hit by declining
      home prices —Obama stressed that foreclosures affect not only those
      who are being forced out of their homes but the surrounding
      neighborhoods as well. "In the end, all of us are paying a price for
      this home mortgage crisis. And all of us will pay an even steeper
      price if we allow this crisis to continue to deepen," Obama said.

      Next: The Political Sell

      That argument that all homeowners have a stake in the outcome is key
      to persuading homeowners who are paying their mortgages to support a
      plan that helps those who cannot do so, said Howard Glaser, a former
      Clinton Administration housing official and a consultant to Fannie
      Mae and Freddie Mac.

      "A $500 check to your next-door neighbor is more 'real' to many
      people than the abstraction of shoveling hundreds of billions into
      bailouts for banks headquartered thousands of miles away," Glaser
      said in a report on the plan. "Obama will need to employ all of his
      communications skills to explain why all Americans benefit from using
      taxpayer funds to help homeowners in trouble.

      Obama said that the plan "will not save every home" and will not
      apply to speculators or "rescue the unscrupulous or irresponsible…And
      it will not reward folks who bought homes they knew from the
      beginning they would never be able to afford." Guidelines for the
      mortgage modification plan will be announced when the program begins
      on March 4.

      But it remains unclear whether that will overwhelm critics who argue
      that the plan promotes "moral hazard" by encouraging people to take
      excessive risks knowing that someone will bail them out.

      "The government could end up subsidizing mortgage borrowers, lenders,
      and servicers to the tune of more than $10,000 as part of this
      program." said Mike Larson, real estate and interest analyst at Weiss
      Research in Jupiter, Fla. "How is that fair to borrowers who played
      by the rules…That's what many Americans are going to be asking, and
      what many politicians are going to be hearing from callers."

      Mintz is news editor for BusinessWeek.com in New York.



      Obama's Housing Bailout Draws Comparisons to McCain's Plan
      President Obama's $275 billion housing bailout plan, aimed at halting
      mortgage foreclosures, is drawing comparisons to a proposal
      championed last year by John McCain.
      Thursday, February 19, 2009

      President Obama, in rejecting GOP alternatives to his massive
      economic stimulus plan, cited his electoral victory over John McCain
      in November as proof that Americans wanted change.

      But Obama's $275 billion housing bailout plan, aimed at halting
      mortgage foreclosures, is drawing comparisons to a proposal
      championed last year by John McCain.

      "I hope they took the best ideas wherever they found them. And,
      certainly, Senator McCain campaigned for a long time on this
      proposal," said Douglas Holtz Eakin, former economic adviser to
      McCain and author of McCain's plan.

      Obama's $275 billion program offers $75 billion in incentives to
      lenders to lower payments by at-risk homeowners to 31 percent of
      their income. The other $200 billion would be drawn from money
      approved by last year's Congress to bolster efforts by federal
      lenders Fannie Mae and Freddie Mac to offer affordable mortgages and
      bring stability to the housing market.

      Holtz Eakin says Obama has recognized the need to stop foreclosures
      before they happen. It's an idea he says McCain introduced at his
      second presidential debate with Obama.

      "I would order the Secretary of the Treasury to immediately buy up
      the bad home loan mortgages in America and renegotiate at the new
      value of those homes," McCain said.

      McCain said he was following in the footsteps of Hillary Clinton, but
      her aides said his plan was nothing like hers.

      Housing Secretary Shaun Donovan also says McCain's plan is not like
      Obama's, explaining that Obama's is "focused, targeted to those most
      at risk of foreclosure and would be far less expensive to the
      taxpayer than Senator McCain's plan."

      Democrats said McCain's $300 billion plan would have had the
      government basically eat the cost of reduced property values.

      "Taxpayers shouldn't be asked to pick up the tab for the very folks
      who helped create this crisis," Obama said on the campaign
      trail. "And that's the problem with Senator McCain's risky idea."

      Now Obama's $75 billion plan would have the government and the
      finance industry share the cost of declining property values for a
      smaller group, though it envisions pumping $200 billion more into
      Fannie Mae and Freddie Mac, which McCain criticized in the fall for
      supporting the Obama campaign.

      "His pals there and the Democrats in Congress that refused to reform
      Freddie Mac and enact legislation to stop this crisis," McCain
      charged on the campaign trail.

      Donovan, however, says the money is just a backstop.

      "We have no expectation that the full amount would be needed,
      certainly not in the short run," Donovan said.

      On that score, however, Obama officials say they are facing the
      problem of having to rescue institutions that are too big to fail.
      Fannie Mae and Freddie Mac are the mortgage market today, Obama
      officials say. They account for the vast bulk of mortgages and
      without them mortgage rates would soar and far fewer mortgages would
      be available.

      FOX News' Wendell Goler contributed to this report.


      Rick Santelli: Asshole of the Year...


      CNBC's Santelli Rants About Housing Bailout
      February 19, 2009

      CNBC's Rick Santelli made a splash this morning. It is being
      called "Santelli's Rant" or "Santelli's Chicago Tea Party".

      Santelli derided the Obama administration's housing rescue plan,
      which aims to spend more than $200 billion when all is said and done
      to try and keep people in their homes. The goal? By helping the
      hardest hit, you help everyone by raising home values.

      Back to Santelli. He was at his perch on the floor of the Chicago
      Board of Trade and with a nod to those around him he blasted Obama's
      plan. Here is a transcript of what he said:

      Rick Santelli CNBC transcript (video):

      "Mr. Ross has nailed it. The government is promoting bad behavior. We
      certainly don't want to put stimulus pork and give people a whopping
      $8 or $10 in their check and think that they ought to save it.

      And in terms of modifications, I tell you what. I have an idea. The
      new administration is big on computers and technology. How about
      this, Mr. President and new administration. Why don't you put up a
      website to have people vote on the internet as a referendum to see if
      we really want to subsidize the losers mortgages? Or would they like
      to at least buy buy cars, buy a house that is in foreclosure … give
      it to people who might have a chance to actually prosper down the
      road and reward people that can carry the water instead of drink the

      This is America! (he turns to the traders nearby)

      How many people want to pay for your neighbor's mortgages that has an
      extra bathroom and can't pay their bills? Raise their hand!

      President Obama, are you listening?

      You know Cuba used to have mansions and a relatively decent economy.
      They moved from the individual to the collective. Now they're
      driving '54 Chevys.

      It's time for another tea party.

      What we are doing in this country will make Thomas Jefferson and
      Benjamin Franklin roll over in their graves."



      Defending President's Housing Proposal, Gibbs Assails CNBC Personality
      February 20, 2009
      Political Punch
      Power, pop, and probings from ABC News Senior White House
      Correspondent Jake Tapper

      The White House lashed back today at CNBC'S Rick Santelli, a CNBC
      personality who assailed President Obama's housing rescue plan
      Thursday on the floor of the Chicago Mercantile Exchange.

      "I'm not entirely sure where Mr. Santelli lives or in what house he
      lives," said White House press secretary Robert Gibbs during a press
      briefing. "But the American people are struggling every day to meet
      their mortgage, stay in their job, pay their bills, to send their
      kids to school, and to hope that they don't get sick or that somebody
      they care for gets sick and sends them into bankruptcy. I think we
      left a few months ago the -- the adage that, if it was good for a
      derivatives trader, that it was good for Main Street. I think the
      verdict is in on that."

      "Mr Santelli doesn't know what he's. talking about," Gibbs said a
      little later. He was responding to a question about public anger at
      the fact that some people who acted irresponsibly may benefit from
      the president's plan, a question which mentioned "that cable rant on
      the floor of the exchange."

      "Mr. Santelli has argued -- I think quite wrongly -- that this plan
      won't help everyone," Gibbs said. "This plan will help, by the money
      that's invested in Freddie and Fannie, will drive down mortgage rates
      for millions of Americans."

      Concluded Gibbs, "now, every day when I come out here, I spend a
      little time reading, studying on the issues, asking people who are
      smarter than I am questions about those issues. I would encourage him
      to read the president's plan and understand that it will help
      millions of people, many of whom he knows. I'd be more than happy to
      have him come here and read it."

      "I'd be happy to buy him a cup of coffee," Gibbs wryly added, in
      remarks he seemed to have prepared. "Decaf."

      "Let me do this, too," Gibbs said. "This is a copy of the president's
      home affordability plan. It's available on the White House Web site,
      and I would encourage him, download it, hit print, and begin to read

      Santelli, who has been a member of both the Chicago Mercantile
      Exchange and the Chicago Board of Trade, lashed out at the Obama
      administration yesterday for "promoting bad behavior."

      "We certainly don't want to put stimulus forth and give people a
      whopping $8 or $10 in their check and think they ought to save it,"
      effused Santelli on CNBC from the floor of the Exchange. "And in
      terms of modifications, I tell you what, I have an idea. The new
      administration is big on computers and technology – how about this,
      President and new administration? Why don't you put up a Web site to
      have people vote on the Internet as a referendum to see if we really
      want to subsidize the losers' mortgages, or would we like to at least
      buy cars and buy houses in foreclosure and give them to people that
      might have a chance to actually prosper down the road and reward
      people that could carry the water instead of drink the water."

      There were some cheers from those surrounding Santelli on the floor.

      "This is America. How many of you people want to pay for your
      neighbor's mortgage that has an extra bathroom and can't pay their
      bills? Raise their hand."

      There were boos.

      "President Obama are you listening?" Santelli asked.

      Santelli said, "We're thinking about having a Chicago tea party in
      July. All you capitalists that want to show up to Lake Michigan, I'm
      going to start organizing it! We're going to be dumping in some
      derivative securities, what do you think about that?"

      Asked about the general benefit of cable news discussions on the
      economy, Gibbs said "people are entitled to their own opinion, not
      just their own facts."

      Gibbs said "I don't think anybody can sit in front of some of the TV
      and listen for an hour and not hear somebody that's making a case
      that just -- I've got to assume they knowing -- they know just isn't

      He added that if "I hadn't worked on the campaign, but simply watched
      the cable news score-keeping of the campaign, we lost virtually every
      day of the race...If I would have just watched cable TV, I long would
      have crawled into a hole and given up this whole prospect of changing
      the country."
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