Treasury’s Stegman: Fannie, Freddie Don’t Need to Retain Capital (Because Taxpayers Are On The Hook For Losses)

So much for Congress and the Administration saying that they want to return mortgage giants Fannie Mae and Freddie Mac to the private sector or shut then down. Now Treasury’s Michael Stegman is proclaiming that unlike banks, Fannie and Freddie don’t need to retain capital since US taxpayers are backing them. In other words, there are different rules for the government than there are for the private sector.

(Bloomberg) -by Clea Benson- Fannie Mae and Freddie Mac don’t need to retain capital because they have U.S. taxpayers backstopping them, the Treasury Department’s senior adviser on housing policy says in New York speech.

Agreements in which U.S. takes all of companies’ profits also “protect the solvency” of GSEs, Michael Stegman says Thursday at Goldman Sachs housing finance conference.

Sales of illiquid assets on GSE balance sheets, especially nonperforming loans, should be accelerated: Stegman

Fannie, Freddie also should increase credit-risk transfers to private-sector on new loan originations and open the common securitization platform to private-label securitizers, he says.

Congress needs to pass a law creating a new housing-finance system, Stegman says.

“Simply returning these entities to the way they were before is not practical nor is it a realistic consideration.”

I knew this was going to happen all along. Fannie Mae and Freddie Mac are too important to politicians trying to buy votes.  And Fannie and Freddie are important to lenders who want to dump their 30 year mortgage originations on to the government (and taxpayers).

The United States has the heaviest concentration of long-term fixed-rate mortgages in the world. And largely because Fannie Mae and Freddie Mac will buy them.

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Why doesn’t the US move to more adjustable-rate mortgages (ARMs)? Michael Lea and I discuss the merits of ARMs in this paper.

Here is Fannie Mae and Freddie Mac equity price versus Lehman Brothers, another financial entity with very little capital backing it. All three took a big plunge during 2007 and 2008. Fannie Mae and Freddie Mac were placed into conservatorship while Lehman Brothers declared bankruptcy.

fflehmThe obsession with the 30 year fixed-rate mortgage will doom the US to having Fannie Mae and Freddie Mac around … forever. Without capital backing its plays.

Treasury’s Stegmen: “They don’t need no stinking capital.”

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Q4 GDP Rose Less Than Previously Thought (Down 60 Percent From Q3), Growth Slows Where My Government Grows

Well, ain’t that a kick in the head.

Q4 GDP rose at a 2.2 percent rate, a downward adjustment from the preliminary estimate of 2.6 percent.

gdpq4sNotice how GDP growth have been declining since 1950 (16.9 percent QoQ) to Q4 2013 (2.2 percent QoQ). Now QoQ GDP growth is down 60 percent from Q3 to Q4 2014.

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As the Edison Lighthouse once sang (sort of ), growth slows where my government grows.

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Personal consumption expenditures grew at 4.2 percent QoQ, tying the highest rate since The Fed began their massive intervention.

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Here is the breakdown of the Q4 GDP numbers.

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What did Americans spend their money on? HEALTHCARE! (I am using a chart from Zero Hedge since I have to head to the hospital for my knee arthroscopy.

persona spending Q4 revised_0

Let’s see if The Federal Reserve and Janet Yellen have any tricks up their sleeves in their Little Green Bag.

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Mr Freeze! Existing Home Sales Freeze (But It ISN’T The Weather), 36 Percent Of All Home Sales Are All-Cash

Existing home sales in January froze, dropping -4,93 percent (versus the expectation of -1.8 percent).

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No, it isn’t exclusively the fault of Mr Freeze. Existing home sales in sunny California and the West  fell by -7.14 percent, more than the decline in the frozen tundra known as the Northeast (-5.97 percent).

The US still remains in a low wage growth, low mortgage purchase application environment.

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If mortgage purchase applications are still imitating The Titanic, what is float the market? CoreLogic reports that 36 percent of all transactions in November were all cash. Particulary in the real estate owned (REO) space.

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Michigan is a leader in all-cash home sale transactions. That puts Michigan up (or down) there with Mississippi.

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Yes, the residential housing and mortgage markets are still dominated by Mr Freeze. But a third player in the frozen tundra is the regulatory community which always manages to freeze everything,

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And Ms. Freeze!

Janet Yellen

 

Debtors’ Prison: Global Debt Has Grown $57 TRILLION Since 2007 With 100 Percent Of Sovereign Debt Monetized

Now that the Greece default crisis is on temporary hold (they will be back again), it is time to turn our focus to the GLOBAL debt market.

Since the subprime mortgage crisis and Lehman failure, global debt has grown by $57 trillion since 2007.,raising the ratio of debt to GDP by 17 percentage points.

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Here is a nice chart from McKinsey &  Company that shows the relative rise of PUBLIC SECTOR debt relative to HOUSEHOLD debt. That is, governments borrowing money on YOUR BEHALF that you are now liable.

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Couple this chart with the fact that Central Banks are monetizing 100 percent of sovereign debt.

Government Debt Net Issuance 2015Purchasing Power of the US Dollar has fallen from $1,000 in 1914 to $42.60 today. The Federal Reserve System was created on.December 23, 1913.

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We now in a modern day debtors’ prison system, except that government is borrowing money for which households are responsible.

But don’t worry. Paul Krugman says we owe the money to ourselves. Just don’t tell OPEC, China, Japan and Belgium what Krugman said. Now ain’t that a kick in the head!

sovownfedA Virginia Debtors’ Prison.

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Dodd-Frank Banking Regulation Rules Fail to Measure Costs, Benefits (35.8 Million Hours Of Paperwork, $2.1 Billion In Costs)

According to Bloomberg Briefs and the American Action Forum,

Dodd-Frank Act regulations “have failed to monetize more than 35.8 million hours of paperwork,” according to the American Action Forum, yielding an estimated $2.1 billion in costs.

“This hourly figure adds up to 1,493,463 days worth of regulatory compliance, or 4,902 years,” Sam Batkins, director of regulatory policy at the center-right policy institute, said in a commentary posted on its website. “To put 35.8 million hours in economic terms, assuming a regulatory compliance officer worked 2,000 hours a year, it would take 17,922 officers to complete one year of this paperwork; and regulators proclaim that in costs nothing.”

The AAF found that regulators have finalized 47 major Dodd-Frank rules, or those with an annual effect on the economy of $100 million or more, since 2010, and 31 of these rules provided cost estimates. Batkins said in the commentary that benefit figures are rarely listed.

Most Dodd-Frank rules since 2010 have been at the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB) is relatively small in terms of numbers, but BIG on regulatory capture and market distortion,

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Compliance costs generally are more savage for community banks than for mega banks.

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And you wonder why, in part, mortgage origination are so abysmal?

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Regulate, regulate, dance to THEIR music!

Chris Dodd and Barney Frank are two of the Three Dog Night. We can add then Senate Majority Leader Harry Reid as the third dog.

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Surprise! Bloomberg And Citi Surprise Indices Crash With $50 Crude Oil

I listen to CNBC and Fox Business where “analysts” were claiming that declining oil prices would lead to a big resurgence in the economy. After all, crude oil prices have declined 50 percent since last summer.

Coincidentally, both the Bloomberg Macro Surprise and Citi Surprise index have collapsed as well.

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And here is the latest Bloomberg surprise monitor:

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So, plunging crude oil prices have NOT improved the economy.

Surprise!

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