Tuesday, February 24, 2015

As Always, The Real Angst Is Not Over Public Initiative ... Rather, The Argument Is About Whom Public Wealth Is Dispersed To

   (Commentary posted by Roger Erickson)

Turns out that even those supposedly terrified by a Fiat "Deficit" are in reality just fine with any amount of fiat spending ... to directly fund anyone EXCEPT the Middle Class.

The eternal jostling at the pig trough, to hoard our still increasing Public Initiative.*

Dick Bove: There's a new mortgage crisis brewing
  [Cross posted from John Lounsbury, at GEI]
Mortgage funds appear to be drying up. Bove says that banks are not finding it profitable to originate mortgages with record low interest rates. The FHFA (Federal Housing Finance Agency), which operates the government mortgage banks Fannie Mae and Freddie Mac, has been weakening the mortgage underwriting rules imposed in 2010 and the years following. This includes reversing the plan to reduce Fannie and Freddie participation in the mortgage market with the goal of reducing their activity to zero by 2018 and easing the qualification requirements for mortgages to accept lower credit scores and reduce down payments to 3%.

Bove says the following about the possible return to losses for Fannie and Freddie or, alternatively, tightening of the underwriting rules for mortgages and the return to the plan for Fannie and Freddie to withdraw from the mortgage market:
"Now some people are beginning to get concerned. They are worried that taxpayers may be forced to provide Fannie and Freddie with more cash. They fear more large losses could be reported by these companies. 
Moreover, the people who take a close look at the balance sheets of Fannie and Freddie see that their equity is disappearing in payments to the U.S. Treasury while their guaranteed book of loans is growing. These people are beginning to understand that Fannie and Freddie are building the debt obligations of the United States government and no one is stopping them; certainly not Congress who is looking benignly on. 
The dilemma is: If the policymakers stop the growth of Fannie and Freddie, they will stop the growth of housing. If they do not stop the growth, Fannie and Freddie will increase the debt obligations of the United States." D. Bove
Whatever happens the housing market for the U.S. is headed for trouble again, according to Bove, and the mortgage market (or actually the lack of a mortgage market) will be at the bottom of it. For the past 2-3 years Keith Jurow has been tracking local housing markets throughout the U.S. and has repeatedly warned that the housing "recovery" was actually no such thing. In fact he is concerned about all aspects of real estate. See herehere and here.


* Public Initiative = Fiat Spending = An arbitrarily defined accounting "Deficit"
         (which = currency creation;  it's what currency issuers DO)

Ask not for whom the currency is created.

It's created for ... your masters? Or for you?


Matt Franko said...

Dont forget about the interest payments made to the Fed via the MBS portfolio which they also return to the Treasury for "deficit reduction"....

Roger Erickson said...

Not to mention these misguided (or evil?) dingbats still on a mission to Neuter the Fiat.


paulmeli said...

"If the policymakers stop the growth of Fannie and Freddie, they will stop the growth of housing."

If policymakers don't stop the growth of housing the system will eventually stop itself as loans made to people who can't repay don't.

You can pay me now or you can pay me later.

The blind spot in the narrative…fraudulent underwriting… is the elephant in the room.

Roger Erickson said...

Yup. That's right Paul. They're double blind.

In one eye, they see the need to balance fiat (supposedly; is it winking?)

In the other, they see the need to fill their own pockets, no matter what.

The problem is not in the mirror. It's in what's looking at the mirror. The facts, as always, are staring them in the face.

Roger Erickson said...

Every process has room for catalysts to either accelerate or decelerate all inputs & outputs, i.e., sources & sinks. Very analogous to rate constants in chemical reactions.

The undiscussed side of this brouhaha is to simply raise the net income of an ex Middle Class currently unable to purchase what they're capable of producing.

Marriner Eccles preached this 80 years ago, as did DH Doughlas, 90 years ago.

If I remember right, Abe Lincoln did too.

It's the simple reality of a closed, dynamic system. Net inputs have to match net outputs. If new local sinks are allowed, it forces the system to reset to a constrained state.

Mosler's (and a tiny trickle of others) have been harping about "Demand Leakages" all along.

Unfortunately, we actively teach the vast majority of our population to dis-believe in economic fuel leaks. Everyone agrees that fuel leaks degrade engine performance, but, magically, not economic-engine performance.