'Save Us!' Says Merrill Lynch
Wall Street has been supporting Democrats in greater numbers since the Clinton era. How to reconcile that with its professed belief in the wonder-working power of free markets? Maybe there is really nothing to reconcile when you have the top economist at one of the country's premier investment firms making recommendations like the one made by David Rosenberg of Merrill Lynch (boldface mine):
To alleviate credit market paralysis, the outright purchase of illiquid mortgage-backed securities (MBS) is probably required, and could employ government-backed fiscal action. So far, government-backed plans have relied on just voluntary actions by loan-servicers to modify existing mortgage loans, resulting in low participation. The Federal Reserve itself could buy some of these securities, but the Fed alone cannot unclog the congestion in the credit markets, in our opinion.
The US Treasury, under the auspices of the White House, has rejected plans calling for government intervention. However, a combination of the quick demise of Bear Stearns and the domino effect this could have had on our financial system, plus home prices still in free fall, has increased calls for government involvement. Eventually the Bush Administration may have to change its attitude.
However, more aggressive monetary or fiscal policy responses will not end the economic recession, stop home prices from falling, or reverse the dramatic de-leveraging in the financial system. Bolder Washington initiatives can, at best, only soften the negative impact on the economy and possibly provide for somewhat of an orderly unwind of credit conditions.
My take: The more Uncle Sammy helps Wall Street, the more pressure to help Main Street. Hillary got the meme right in her speech of a few days ago (boldface mine):
Last week when it became clear Wall Street was on the brink of a financial meltdown, the Fed and the administration sprang into action. The Fed extended a $30 billion lifeline to prevent Bear Stearns from imploding and took unprecedented action to provide tens of billions of dollars in credit for other struggling investment banks as well. Homeowners, on the other hand, have received next to no assistance. Well, let's be clear. When families are losing their homes, that's also a financial crisis. When people's greatest source of wealth is losing its worth, as college costs and healthcare costs and food and gas prices shoot up, that's a financial crisis too. When "for sale" signs line streets across our country, when cities and towns are struggling with the costs of foreclosed properties, that is also a financial crisis.
Tags: Federal Reserve | Merrill Lynch
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A window on how big the SIV crisis really is
I was reading comments from the Jim Sinclair web site (www.jsmineset.com) on this subject and found the most interesting thing to be that when a top economist from a top firm is calling for the monetizing of even more illiquid paper than the Fed is already doing, that it probably will be done and also that this indicates just how super serious this problem is. I believe its enormous and the long term implications for massive inflation are for me disastrous. Here is an excerpt from Jim's site.
"...
Monty Guild's Commentary
Today Merrill Lynch’s North American economist came out and predicted that government backed fiscal action is required to ‘alleviate credit market paralysis.” This means according to Merrill “the outright purchase of illiquid mortgage backed securities.” As you know this is something we have been predicting for many months now that the bandwagon is getting more crowded. We look for the government to take such action.
Once establishment organizations like Merrill and others begin such a call for action it will probably be coming.
This action will not stop a big US and European economic slowdown and substantial recession in the US, nor will it stop gold from moving much higher. It will allow the current ongoing credit de-leveraging to proceed with less cataclysmic effects upon the US and world economy in our opinion.
Respectfully yours,
Monty guild
Dear Monty,
1. These items, also known as SIVs, are items with no intrinsic or market value, nor will there be any in the future. I have discussed this many times.
2. The Fed has been buying defunct mortgage derivatives every day. Merrill wants it bigger and faster than the Fed has been buying. This gives you a window by which you can view the continuing size of this crisis.
3. To everything economic there are economic consequences, just like the side effects of miracle drugs.
4. The consequences to the monetization of bankrupt special performance contracts (called mortgage SIVs) is the making of US citizens the immediate last resort buyer of the Titanic amount of valueless crap!
5. This is exactly the flow of events that created the Weimar Experience.
6. You are right, but in the above context.
..."
Reply to DB of NY
Exactly....in terms of me not providing a reference to my "statistics"! WHY is it that Gerri Willis of CNN and/or any other reporter who is reporting on the mortgage crisis only seems to cover the surface and NEVER give the full picture or truely do an investigation to get to the details. Sure there are people getting foreclosed upon and there is an increase. Coming from an accounting background, where executives showed me a thing or two about how to "report numbers", you can make any number look good or bad just in the presentation. If there was only 1 foreclosure in all the US and 2 the next year...the news would jump all over that as a 100% increase in the foreclosure rates. My question becomes, with the increase in total number of mortgages over the past few years...what is the ratio of foreclosures to performing mortgages now as compared to the same ratio in 2006, 2005, 2004 etc...... My point being the big banks are not suffering because of mortgage foreclosures, they are suffering because of the press perpetuating the negative creating a psycological freeze of the credit markets. Someone, correct me here! Someone provide us some true statistics! Resolution to market crisis....easy... stop all the bad press and get some decent reporting.
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Question?
I keep reading that it is less than 2% of all mortgages that are failing...ie...going into foreclosure. If this is true and you compared that to a business with just 2% of accounts receivable not paying, then how can banks continue to scream they are hurting. (aside from a frozen market due to continued press creating negative hysteria which is a completely different thread)
Most businesses, even small ones can handle a default of 2% of its receivables.
Think about it....and these big bank guys are the ones who went to Harvard Business school right? They are smarter than the average bear....crooked as hell but smarter. Thanks for hood winking buyers, employees and stockholders and enjoy your $200 million bonus as you sip the froo froo drink in "ship the money to an off shore account" hideaway destination unknown.
Stop the whining, modify the loans, give up your bonus to save a few good honest homeowners that were hoodwinked and work hard for 30k a year for the next few years to get yourself out of the mess you and your Harvard degree got yourself into!
I don't have any more tax dollars to rescue you...it's all going my gas tank!
Mar 27, 2008 17:39:21 PM [permalink] [report comment]