The SIGTARP has apparently gone and illustrated the ways in which is government is propping up home prices in the US.
As an investor, why would I buy something when I know the prices are being artificially inflated?
Further, why is the government using tax dollars to attempt to force me to overpay for a home?
As a renter, shouldn’t I be entitled to the same tax rebate as a home buyer? Is it not effectively a tax on all renters in the US?
Unfortunately, I guess stupid, overlevered property owners are a larger voting block than rational thrifty renters…
DWase UST Fed, Housing, UST
Doug is a great guy and smart as hell – I’ve actually met him. (Loves the Veal Parm at the Palm.)
At any rate he’s gone and done his 20 for 2010. Good reading if you’ve got a couple of minutes.
Kass: 20 Surprises for 2010
Notice #8…
And notice what I wrote back in May 2009:
More Confirmation
Guess we’ll see how it all plays out in 365.
DWase Banks, Predictions Banks, GS, PE
I’ve moved to London and taken a new job in VC, so the posts may be more sporadic as I settle in. Yes, they were already sporadic enough during the summer.
On another note, did you know the UK is now considered a third world country? Yup. One of my friends told me so.
DWase Uncategorized Personal
The Fed and the Treasury bailed out the large banks last year to the tune of several Trillion dollars. The banks and their minions went from zeros to heros in about 6 months time. Strangely, the banks haven’t increased their lending. In fact, they’ve done the exact opposite by squeezing borrowers with new and improved credit card rates up to 29.99%.
So where did all that bailout money go? Judging by some of the banks’ quarterly reports, mostly prop trading and speculation since that’s the only place they can make a buck.
Want to know why oil is pushing $80+ with no end-user demand in sight and storage facilities at max capacity? Taxpayer-backed Speculators masquerading as Investment Banks.
Bernanke says that we need to save more to fix the global imbalance.
‘Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country is not necessarily straightforward,’ Bernanke said.
If everything is so flippin’ hunky-dory, suck some liquidity out of the system and start paying savers SOMETHING instead of ripping them off to bail-out the losers!
Paying 1.2% and Charging 29.99% ???
Remind me again why they got bailed out? Was it so they could run around and gouge their customers? Or maybe so they could threaten and extort more cheap capital from the captured Washington geniuses?
Sometimes I feel like I’m in the Twilight Zone and I’ve woken up to find the world has gone mad, but everyone is treating me like I’m the crazy one. I guess it’s ok because in the end, Washington will reap what its sown when they realize they’ve gone and re-empowered the psychopaths on Wall St. Basically guarantees we get a W-shaped recession.
DWase Uncategorized Bailout, Banks, Fed, GS, lending
The banks have largely started to decry additional regulation or restrictions. They’ve threatened (and I use that word quite intentionally) that if there are additional strictures, they will be forced to reduce lending.
Let me make a few things clear:
- The banks lend because that’s how they make money. They borrow cheaply from the Fed or depositors and lend at higher rates. Hopefully without too much of a duration mismatch (pdf link), but that has actually been at least one source of their problems. Otherwise, they’re just speculators (a post for another day).
- When the Fed drops the overnight rate to 0-0.25% and institutes a policy of paying interest on excess reserves, it has impaired the fundamental reason for banks to lend: profit. Since banks can now earn a risk-free return with absolute liquidity while not lending, they have a reduced need to do so. They also have no need to pay interest on deposits since they have more liquidity than they know what to do with.
- Banks can’t force people or businesses to borrow. Right now, there are basically ZERO marginal borrowers because the whole world is over-leveraged.
If the Fed wanted banks to lend, they would reduce some of the liquidity programs and stop incentivizing the banks to sit on what liquidity remains. To the extent that additional regulation would require leverage limits at the banks, it’s true that some lending would be reduced. Massively increased leverage levels was what allowed the banks to lend with such reckless abandon. So, yes, if we return to a world with Glass-Steagal and leverage limits for ALL banks, lending could be reduced. However, this is not a bad thing (despite legislators’ protestations to the contrary).
We need to deleverage as a society because excessive debt has clogged our economic engine. You can’t fix it by borrowing more money. Hopefully the US Government will figure that out as well.
EDIT – Barry Ritholtz, after REALLY stinking up the joint on GS bonuses, posts reports largely the same analysis I just walked you through as done by John Mauldin.
DWase Banks Banks, Fed
People always say that the Fed or other Central Banks can’t control where the liquidity flows when they cut rates.
I think we can safely say that when you cut rates to bail out the Banking industry, you inevitably blow a bubble in GS Executive Bonuses. Too bad the Fed can’t call such a surgical strike on the unemployment rate…
Or did I miss something?
(nod to DMB)
DWase Uncategorized Bailout, Banks, Fed, GS
There are a few schools of thought it seems about whether we’re facing inflation or deflation. You can cross-categorize them by the time-frame they address. I’m not going to get deeply into the debate because I think it’s been discussed ad nauseum almost everywhere else. Personally, I think the Fed has done everything it can to reignite inflation, but we’re well-past the point where the Fed can single-handedly fill the gap. And even when you add in all the additional Federal spending and the liquidity from the other central banks, I still think the wealth destruction and necessary de-leveraging will overwhelm this coordinated attempt. The best they can do is try to soften the landing a little bit.
At the end of the day, US consumers don’t need more credit… they need better wages. Until real wage growth returns to the United States (and I’m not too optimistic in this department), neither will inflation for domestically produced goods. Unfortunately for many, it is certainly possible that inflation will return for many foreign goods (including petroleum-based auto fuel) prior to that wage growth. Realistically, most of the new money “printed” by the Fed has gone to recapitalize the banks and assist the credit markets. It will not make it off their balance sheets in any meaningful way. To wit, the demand for credit is declining. Until we reach a more sustainable level of societal leverage, you can expect more of the same.
DWase Uncategorized Fed, Inflation, USDollar
Back in February, I predicted PE would step in and begin to take banking assets private, in particular the bulge bracket firms. It’s starting although we’re not up to the bulge brackets yet… that’ll probably have to wait until 3Q09.
Buyout Firms Elude Fed as OTS Lets Private Equity Acquire Banks
DWase Uncategorized Banks, PE
