Merry New Year!

I hope 2009 does not stink as badly as I fear it is going to stink, so here's a little happy happy music!

Cool Quotes From Paul Krugman's Blog

Yesterday, on Krugman's blog:

And here’s a trip down memory lane:

“A national severe price distortion seems most unlikely in the United States” — Alan Greenspan, October 2004.

“Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.” — Larry Kudlow, June 2005.

“I suspect that we are coming to the end of this downtrend, as applications for new mortgages, the most important series, have flattened out .. I think the worst of this may well be over.” Alan Greenspan, October 2006.

“The housing market is at or near the bottom.” Henry Paulson, April 2007.

Thanks for nothin', idiots!

Awesome Headline...

Wonkette from yesterday: Bristol Palin finally crapped out her kid, Tripp Easton Von Dildo Palin Aniston Mozzarella Stick Johnston.

We Are All Roland Burris

...Even his kids. From Wonkette:

Roland Burris Has Already Constructed His Terrifying Death Chamber


Wonkette grave-robbing operative “Vasyl” sends us this hilarious bit of information about your would-be new junior Senator from Illinois, Roland “Don’t Lynch Me” Burris: “Just so you know, that nice old black man who is set to become the next US Senator from Illinois is well prepared. He has already built a tombstone — actually, more of a monument — with all his accomplishments listed on it. Planning ahead, he has left extra space for additional accomplishments. Also, Roland Burris’s children? They’re named Roland II and Rolanda. No joke.” HMM… It appears that there is much to learn about this so-called “Roland Burris.”

GIMMEE MY MILK!

The Good Ol' Texas Ratio

From the awesome website lolfed.com, which is tropes on lolcat.com, which is itself a poor version of icanhascheezburger.com, comes the following post, reprinted here in full, as I could not link to it:

There’s an antiquated notion that, perhaps, banks should have more equity and loan-loss reserves than they do nonperforming loans. It comes in handy when banks try to do things like not fail.

In the 1980s, a metric came out of RBC Capital Markets (best associated with Gerard Cassidy) called the “Texas Ratio,” so named for the performance of banks in Texas during the 1980s, and retested in New England in the early 90s. It’s not so complicated; you divide the total of the bank’s nonperforming loans by its total equity+loan loss reserves, and if the ratio is 1:1 (or, worse, 2:1, or higher) you start Photoshopping the bank’s logo onto a sinking boat and posting about it on LOLFed.

Today, LewRockwell.com took this formula - with a variation to account for gov’t-guaranteed debts - and ran the numbers for all the banks in the United States. You might as well look your bank up, though it won’t necessarily give you a warm fuzzy feeling when you do it. A “100″ in their formula is the equivalent of a 1:1 Texas ratio, that is, a bank with bad loans equal to its reserves; any number higher than 100 means they already have more bad loans than reserves. There are a lot of banks to which that applies. Back in May, Cassidy ran the Texas ratio for US banks and predicted at least 150 upcoming failures. LewRockwell’s numbers are probably even less rosy.

Looking at the banks with the better Texas ratios, you will notice many of them have hit the TARP hard. Once our TARP application is approved and we become a bank holding company, we’ll be known as the LOLFed Bank of Bartertown and Cheap Scotch, N.A. We’ll do our best to keep our Texas ratio down.

Sad But True...

True that post by John Aravosis at Americablog about how if everybody cuts spending in order to save their money in case things tank, things will tank. Reprinted here in full:

Krugman wrote a column the other day about how state governments are cutting back spending, at at a time that we need them to keep spending, and even increase spending.

It’s true that the economy is currently shrinking. But that’s the result of a slump in private spending. It makes no sense to add to the problem by cutting public spending, too.

It's the same problem we see with private spending, spending by you and me. It makes sense that you're cutting back your spending, just in case the economy REALLY goes south. But the thing that just might send the economy REALLY south is all of us collectively cutting back our spending. Thus, the precaution leads to the very problem. Ironically, Bush's then-ridiculous advice last year to "spend money" was spot on. But how can you spend when you're afraid that your employer won't spend, but will instead cut back themselves and fire you? It's all one big prisoner's dilemma (or, tragedy of the commons).

[A] dilemma in which multiple individuals acting independently in their own self-interest can ultimately destroy a shared resource even where it is clear that it is not in anyone's long term interest for this to happen.

In other words, it makes sense for YOU personally to stop spending and save your money, but if we all do it, we're screwed. If we all spend, perhaps we're not screwed (and that's part of the problem - there is no guarantee that spending wildly will save any of incomes).

Price Discovery? No Thanks!

Cool post by Yves over at Naked Capitalism, where he discusses how most banks are toast in spite of the huge capital infusions from the government. The salient point is this:

Repeat after me: you need recapitalization AND price discovery. The near pathological avoidance of the latter by the officialdom would seem to support widespread suspicions that marking assets to market, or even a realistic notion of longer-term value, would confirm that the industry is insolvent.

Price discovery is where you let the market (remember it?) decide, based on supply and demand (remember them?), what a commodity is worth. But what would happen if banks admit that a lot of the paper they hold is worthless and that they are basically insolvent because they are so over-leveraged? Sounds pretty scary to me, but at least we wouldn't by giving the money we're printing to the crooks who got us all in trouble in the first place.

Dude! Your Name!

Awesome article in Business Week about Anurag Dikshit, the founder of an internet gambling site who's now in trouble with the feds. It's got a lot of great lines, like:

Apparently, U.S. officials don’t believe Dikshit is a flight risk.

and:

Dikshit has already paid the first $100 million installment.

Mr. Mortgage's Recipe for Fixing the Housing Mess

Mr. Mortgage, who maintains the Mortgage Lender Implode-O-Meter website (worth bookmarking cuz it's chock-full of good information, daily updates, and useful links about the real estate/mortgage biz), wrote an awesome article about the real roots of housing crisis. His recipe for helping homeowners out of their current troubles makes a lot of sense:

It is time for the very same financial institutions that created all of this to do what’s right and re-underwrite every loan originated between 2003 - 2007 using prudent underwriting guidelines. Then, they must reduce the principal balance to what the borrower really earns using a 28% housing and 36% total debt-to-income ratio at a market rate 30-year fixed loan. When home owners are levered to 28/36 DTI they are able to save money and live a decent lifestyle. If they go upside down in their property who cares - they are still able to save money and live the lifestyle their income level allows. At 28/36, their home once again becomes a place to live.

If reducing the principal balance to 28/36 on a market rate 30-year fixed loan winds up being $100k lower than the present value of the home, the bank should receive the differential through an equity warrant to 90% of the value of the property. This way the home owner is not upside down in the home, they can freely sell or refi, they are not getting anything more than they deserve and the bank is still protected. But the home owner gets all of the upside. Anything less and the program will fail. If the borrowers can’t prove income through bank statements at the very least, then they need to leave the house and rent. They should have been renters all along.

For the small percentage of folks who can afford the payments with DTI’s under 28/36 but are underwater solely due to house price depreciation, principal balance reductions to 90% of the present value of the property is likely in order WITH a full-recourse provision to thwart fraud.

For the minority with equity who may owe $200k on a $400k home or have no mortgage at all, you get a multi-year tax break and a lollipop. By de-leveraging and stabilizing the consumer, you will stabilize house prices much faster, which will benefit you. Left unchecked and the consumer de-leveraging and housing price depreciation will continue for years, which brings you down too. You may end up underwater in your home unless the right solution is brought forth.

These things will not prevent housing prices from coming down over the next few years to reach a level of affordability consistent with present mortgage rates and lending guidelines. But at least it would be the best way to begin to undo the irresponsibility of the past five years and get back to basics where house prices and affordability are based primarily on traditional factors such as rents, incomes, interest rates, macroeconomic conditions and sentiment.

This would of course be a tough pill for the banks and investors to swallow, but Mr. Mortgage makes a good case that it's really all their fault.

Passive Homes!

The New York times has a neat article about ultra-energy-efficient passive homes. Apparently, this type of "manufactured" home is all the rage in Germany. Touch my monkey! Here's a cool website about passive home design in the US.

On Being WaMu

Long, detailed NYT piece on Washington Mutual's crazy lending practices. Fun example:

On another occasion, Ms. Zaback (a mortgage screener for WaMu - ed.) asked a loan officer for verification of an applicant’s assets. The officer sent a letter from a bank showing a balance of about $150,000 in the borrower’s account, she recalled. But when Ms. Zaback called the bank to confirm, she was told the balance was only $5,000.

The loan officer yelled at her, Ms. Zaback recalled. “She said, ‘We don’t call the bank to verify.’ ” Ms. Zaback said she told Mr. Parsons that she no longer wanted to work with that loan officer, but he replied: “Too bad.”

SEC = Morons!

Here's the link to the letter that guy wrote to the SEC in 2005 about how the Madoff fund was a Ponzi scheme - it's a 19 page PDF. In its defense, the SEC stated that the letter was short on details, and that is why they did not act. I read the whole thing, not understanding most of it of course, and it is nothing if not detailed. Whoever read this letter and decided to ignore it should have a live python stuck up his or her a*s!

Happy Christmas Your Arse!

The best (but saddest) Christmas song ever written!

46% of Kids do not Finish College...

...But their loans live on forever! Neat piece by Zac Bissonnette, a precocious 19-year-old at Zoo Mass Amherst who can afford a lot of double consonants in his name:

But there are plenty of four-year colleges willing to take the money of anyone who can pony up -- whether that money comes from parents, the government, or that student's paychecks until he’s old enough to buy a discounted movie ticket. These colleges have seats to fill and bills to pay, and sure, they'd all love to be Harvard, but they'll take what they can get. And student lenders? They have absolutely no incentive to encourage responsible borrowing because they will get paid back -- you can file for bankruptcy 400 times, and your student loans will still be there, with interest and penalties accruing daily.