Congressman Hinchey Appears on MSNBC to Discuss Regulating the Financial Sector

Congressman Hinchey appears on Morning Meeting to discuss the banking industry issues currently facing Congress. Video Courtesy of MSNBC.

Turn Off Fox-Increase America’s IQ

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Barney Frank Shows How to Answer Teabaggers

Conservatives Live in a Different Moral Universe — And Here’s Why It Matters

http://www.alternet.org/story/138303/

An interesting article.  The premise:  ”…Liberals and conservatives have highly different moral priorities. And we have to understand them if we want to accomplish anything…” is far too accommodating for my taste; but I suspect Haidt would attribute my attitude to my problems with authority and my lack of group loyalty.
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World’s Smallest Production Car–Peel P-50

NY Times (Carter Dougherty): Sweden’s Fix for Banks: Nationalize Them

NY Times (Carter Dougherty): Sweden’s Fix for Banks: Nationalize Them

The Swedes have a simple message to the Americans: Bite the bullet and nationalize. Officials in Washington are trying to figure out how to shore up American banks that once ruled the financial world but now seem to weaken by the day, despite receiving hundreds of billions of dollars in government aid. With Sweden’s banks effectively bankrupt in the early 1990s, a center-right government pulled off a rapid recovery that led to taxpayers making money in the long run. Former government officials in Sweden, many of whom come from the market-oriented end of the political spectrum, say the only way to solve the crisis in the United States is for the government to be prepared to temporarily take full ownership of the banks. Sweden placed its banks with troubled assets into a so-called bad bank, where they could be held and then sold over time when market and economic conditions improved. In the meantime, it used taxpayer money to provide enough capital to allow banks to resume normal lending. In the process, Sweden wiped out existing shareholders.

Tragic News From Up North

Tragic News From Up North

Best Explanation of Financial Collapse

Devilstower at D’Kos has the best (clearest) explanation of the causes of the financial collapse I’ve seen to date. Hint: It has nothing to do with making loans to people of color or poor people, which is the Republican financial equivalent of “Who Lost China?” OMG my allusions are so dated.

Check out his post here.

Soros Orders a Danish (Mortgage, that is)

Denmark Offers a Model Mortgage Market

There is a safe way to securitize home loans.

By George Soros

The American system of mortgage financing is broken and needs a total overhaul. Until there is a realistic prospect of stabilizing housing prices, the value of mortgage-related securities will erode and Treasury Secretary Henry Paulson’s efforts will come to naught.

There are four fundamental problems with our current system of mortgage financing.

 

First, the business model of Government Sponsored Entities (GSEs) in which profits accrue to the private sector but risks are underwritten by the public has proven unworkable. It would be a grave mistake to preserve the GSEs in anything resembling their current form.

 

Second, the American style of mortgage securitization is rife with conflicts where entities that originate, securitize and service mortgages are generally not the same as those that invest in mortgage securities. As a result, the incentives to originate sound mortgages and to service them well are inadequate. No wonder that the quality of mortgages degenerated so rapidly.

 

Third, mortgage-backed securitizations, which were meant to reduce risk by creating geographically diversified pools of mortgages, actually increased risk by creating complex capital structures that impede the modification of mortgages in the case of default.

 

Finally, and most fundamentally, the American mortgages market is asymmetric. When interest rates fall and house prices rise, mortgages can be refinanced at par value, generating the mortgage equity withdrawals that fueled the housing bubble. However, when interest rates rise and house prices fall, mortgages can only be refinanced at par value even though the market price of the securitized mortgage has fallen.

 

To reconstruct our mortgage system on a sounder basis, we ought to look to the Danish model, which has withstood many tests since it was brought into existence after the great fire of Copenhagen in 1795. It remains the best performing in Europe during the current crisis. First, it is an open system in which all mortgage originators can participate on equal terms as long as they meet the rigorous regulatory requirements. There are no GSEs enjoying a quasimonopolistic position.

 

Second, mortgage originators are required to retain credit risk and to perform the servicing functions, thereby properly aligning the incentives. Third, the mortgage is funded by the issuance of standardized bonds, creating a large and liquid market. Indeed, the spread on Danish mortgage bonds is similar to the option-adjusted spread on bonds issued by the GSEs, although they carry no implicit government guarantees.

 

Finally, the asymmetric nature of American mortgages is replaced by what the Danes call the Principle of Balance. Every mortgage is instantly converted into a security of the same amount and the two remain interchangeable at all times. Homeowners can retire mortgages not only by paying them off, but also by buying an equivalent face amount of bonds at market price. Because the value of homes and the associated mortgage bonds tend to move in the same direction, homeowners should not end up with negative equity in their homes. To state it more clearly, as home prices decline, the amount that a homeowner must spend to retire his mortgage decreases because he can buy the bonds at lower prices.

 

The U.S. can emulate the Danish system with surprisingly few modifications from our current practices. What is required is transparent, standardized securities which create large and fungible pools. Today in the U.S., over half of all mortgages are securitized by Ginnie Mae, which issues standardized securities. All that is missing is allowing the borrowers to redeem their mortgages at the lower of par or market.

 

Because of the current havoc in the mortgage market, there is no confidence in the origination and securitization process. As a result, a government guarantee is indispensable at this time, and may be needed for the next few years. As the private sector regains its strength, the government guarantees could, and should, be gradually phased out.

 

How to get there from here? It will involve modifying the existing stock of mortgages, so that the principal does not exceed the current market value of the houses, and refinancing them with Danish-style loans. The modification will have to be done by servicing companies that need to be properly incentivized. Modifying mortgages that have been sliced and diced into securitizations may require legislative authorization. The virtual monopoly of the GSEs would be terminated and they would be liquidated over time.

 

A plan to reorganize the mortgage industry along these lines would inspire the confidence that would allow a successful recapitalization of the banking system with the help of the $700 billion package approved last week.

 

Mr. Soros is chairman of Soros Fund Management and the author of “The New Paradigm for Financial Markets” (Public Affairs, 2008).

Catskill Community Radio Project

The Pine Hill Community Center is proud to announce our Catskill
Community Radio project.  Catskill Community Radio is a professional
internet broadcast radio station.  Our intent is to serve the local
community with quality programming that arises directly from the ideas
and efforts of the people in the Central Catskills Region.  Catskill
Community Radio is radio for the community, by the community.  We will
serve as an outlet for the creativity of the local people, as a
trusted source for pertinent information, as a forum for differing
points of view, and as an educational resource to youth and adults.

http://www.catskillradio.org