Ben Franklin Report: The Mark to Market Rule

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As if in direct response to Colbert's challenge to create something, anything to believe in to turn the recession around, the Financial Accounting Standards Board changed the Mark to Market rule. Unfortunately this was actually in response to intense pressure from Congress and the Banks. This lets banks revalue their toxic assets before reporting them on their books. (Which makes me wonder why this was done just after the end of the first quarter.) The banks that took on more risk than they could manage don't just get to value these assets at whatever they want, they get to value these pieces of steaming crap at whatever they think someone would pay if anyone was interested in buying a steaming pile of shit just because someone called it golden.

Of course this looks exactly like what we have been doing so far in relation to this banking fiasco. We looked at the disaster and saw that the people in charge had established a system of perverse incentives that encouraged highly risky acts and called them extremely safe because of a complete lack of regulation. Our response has been to give even more huge shit tons of cash these very same people that fucked us for fun and profit and by removing any other regulation that insists we call a spade a spade. I am finding it harder and harder to resist the urge to call for murderous mobs to converge on Wall Street.

The Wall Street response to the reduction of regulation was obvious. Though, two years ago, if you said that Dow 8,000 would be good news people either would have thought you were crazy or they would have been terrified.

In this article, John Berry tries to criticize the negative reaction to the rule change that I outlined above. But he is comparing apples to oranges when he says,

The family doesn’t have to put up money to cover the difference between the mortgage and the lower market value. Nor should the Atlanta bank have to take a big hit on its reported income because some other mortgage-backed securities owner sold in a depressed market.

He is comparing the effect on banks that have to back their lending by having 10% of that value on their balance sheets. Which of course home owners don't do. And the family that is upside down on their mortgage will have to pay that money on the mortgage that is more than the value of their home just because they bought at the wrong time.

Lots of pundits and apologists for the financial industry keep trying to accuse home owners that face loosing their residence of buying beyond their means. Through this argument they try to push some of the moral culpability for this fiasco on people who only wanted a nice house. They didn't buy above their means, they listened to the market. The market told them what they were worth. It's not their fault the market lied to them because they couldn't have understood the market. Seriously, if huge banks couldn't see this coming when they specialize in finance, then its simply irrational to accuse home buyers of wrongdoing just because the effect of their actions is to further reduce the property value of their neighbors.

Berry does make a legitimate point about the removal of reality in accounting. He asserts that the Atlanta bank he is referring to in the above quote intends to hold on to its mortgage backed securities until they mature. Meaning the bank will be getting all the money from the mortgagees. This is the family in his apples to oranges scenario who has to pay the full value of the mortgage even though the house is worth less. (But hey, at least it still provides the same amount of warmth and shelter. Its just that breakfast nook they added doesn't mean they can afford to send the kids to college.) This means that the banks assets are really worth nearly their full value because the bank will get paid what it originally bargained. So the accounting rule lets them value their assets at what they can reasonably expect to still get paid over 30 years and they can lend out more money to consumers and businesses which increases liquidity and gets the markets moving again and leads to more manufacturing, more jobs, and more spending. Everyone's happy.

Except that just brings us back to where we started last November. No one knows how many mortgages will go into arrears or how many will be devalued through the proposed new bankruptcy rules. The short of it is we don't know if the mortgage backed securities will be worth what they were originally bargained for in 30 years when they run their course. All we do know is that they will be worth less. If not become worthless.

Cleveland Ohio: Terrible American City or The Worst American City?

Cleveland is such a terrible cesspool that the suburbs long ago seperated themselves from it politically and financially as much as possible. This amounts to dozens of tax districts in one county. Each of them jealously guarding their hoard like the poison spewing worms they are. They also tax you both in the city you work and in the city you live. So if you commute from a residential suburb to a commercial or industrial town for work then at tax time you get double teamed up the asshole by fat government dicks.

As you can probably tell this is rather personal for me since this double-dick ass fucking I am getting from these cities amounts to a bill for $100 a month. These are cities in the rust belt. The industry left decades ago. The sewers overflow when it rains. The roads have huge and frequent holes which make them worse than most gravel roads I have driven on. These cities don't plow the snow all winter. There are packs of wild dogs roaming the streets at night. Arson is on the rise. What is that money going for?

More golden pig idols?

Walk of Shame: Contempt for Christians

Normally I'm not one for dispensing punishment on anyone based on what may or may not be misguided social regulation, but this case makes me tend towards that whole eye for an eye thing. I'm repulsed that the military protects its officers to such an extent as to allow this waste of flesh to get off with only two years in a deep dark hole that is military prison.

Christians are also adopting Bush's mode of cooperating with congress. That is, not. How rich do you think they are? Sen. Charles Grassley would like to find out.

Bush Sending Mixed Messages on Economy

Its as if Bush believes the economy will do what he says as long as he refuses to admit there are problems. So we get speeches like he delivered today that send mixed messages about the economy.
Compare, http://money.cnn.com/2007/12/04/news/economy/bush/ with, http://hosted.ap.org/dynamic/stories/M/MORTGAGE_CRISIS?SITE=DEWIL&SECTION=HOME&TEMPLATE=DEFAULT

Feeling Sub-Prime?

The thing I want to point out here, that hasnt been mentioned except as denials that it is a consern, is that when the subprime mortgage market is allowed to push off its horrid investments on Fannie May and Freddie Mac this amounts to welfare. This is fucking corporate welfare. These are opportunistic people who took advantage of poor optimistic people who only wanted in on Bush's "ownership society." These subprime lenders were only conserned with making a buck and they all knew they were making a bad investment, which is why they hid these in larger investment packages and passed them off like hot fucking potatoes. Now that the investment has turned out to be a bad one they want to pass the burden of cleaning up the mess on to you and me, the fucking tax payers, and they want to leave the Joe and Jane Doe holding the bag. The poor people that got suckered into these predatory loans are still going to loose their home, while the fucking asshole real estate "flippers" got rich off of over inflated house values.

The big point again is that you and I are going to have to pay for the bad investments of some selfish dickheads. This whole thing strikes me as hypocritical bullshit. the people that wer making these investments are the kind of assholes that bitch and moan about the cost of social services and demand we privatize everything, but as soon as trouble looks their way and they go crying to the government for help. Every aspect of this makes me sick.

This whole thing is made worse because its tied up with the falling dollar, droping consumer confidance, falling manufacturing, inflation, falling wages, increasing unemployment, vastly increasing deficet.

Smell that wound, and tell me if it smells like Limburger

So, apparently the American housing market is going to continue to get worse and worse, judging from the storm surrounding Fannie Mae in the last couple of days. Apparently, the government-run enterprise is exposed to the tune of 270 billion dollars to the subprime housing market. This makes the funny math that Fannie Mae tried to pull on its last accounting statement all the more interesting, as it may indicate that they are already experiencing beyond normal losses, and the CEO is predicting twice the norm for next year. If one believes in the predicative power of the marketplace, the fact that Fannie Mae lost about 10% of its stock value yesterday.

The interesting part of this story comes from the fact that the housing market is eager to to push off their subprime assets onto the big GSEs, such as Fannie Mae and Freddie Mac, which is why the market is so eager to see Fannie Mae' supervising agency, the OSHEO, to raise the housing lender's government-imposed financing caps. But, in light of the aforementioned outstanding exposure, combined with the fact that Fannie only has $40 billion in capital on hand, the bond issuance of the day before yesterday to the tune of $3 billion backed by home loans. looks like a desperate effort to keep the entire corporation from sinking into the red.

How important is Fannie Mae considering the unfolding crisis? I would say, "very."