financial crisis

Latest from Thomas Palley is a must read

A big tip o' the hat to disrael on DailyKos, who caught the latest from economist Thomas Palley, America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession.

Palley's introduction sets the hook quite well:

Most commentary has therefore focused on market failure in the housing and credit markets. But what if the house price bubble developed because the economy needed a bubble to ensure continued growth? In that case the real cause of the crisis would be the economy’s underlying macroeconomic structure. A focus on the housing and credit markets would miss that.

No Political Party Had Clean Hands in Washington D.C.

No political party had clean hands when it came to having a role in this financial crisis. This was especially true when it came to certain powerful Democrats. Democrats loved Fannie Mae and Freddie Mac and Countrywide Financial Corp because these organizations showered Democrats with cash. We know that money talks in Washington.

Countrywide Financial had a "VIP" program that its former CEO Angelo Mozilo liked to use to very generously to reward friends of Countrywide. It was informally called "Friends of Angelo Mozilo". Well, it was disclosed last year that two powerful Democrats may have benefited from this "VIP" program: Senators Chris Dodd and Kent Conrad.

Mythical Subprime - Cleveland Fed. Comments

The Cleveland Federal Reserve has a new commentary, Ten Myths about Subprime Mortgages and debunks each one.

Fed's Top 10 Subprime Myths

  1. Subprime mortgages went only to borrowers with impaired credit
  2. Subprime mortgages promoted homeownership
  3. Declines in home values caused the subprime crisis in the United States
  4. Declines in mortgage underwriting standards triggered the subprime crisis
  5. Subprime mortgages failed because people used homes as ATMs
  6. Subprime mortgages failed because of mortgage rate resets
  7. Subprime borrowers with hybrid mortgages were offered (low) “teaser rates”
  8. The subprime mortgage crisis in the United States was totally unexpected
  9. The subprime mortgage crisis in the United States is unique in its origins
  10. The subprime mortgage market was too small to cause big problems

Financial Oligarchy "Lobbies" Up

Now, it is not like the financial oligarchy's lobbyists have not done their job so far but they are gearing up for the biggest battle.

Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.

Notice who they are enlisting for help - two former aides to Paulson. The battle is for "the hearts of minds" of Congress because Congress holds the key to real regulatory reform (not that bambi crap that Obama Administration proposed).

IMF Projects $4.1 Trillion in Losses from the Financial Crisis

The IMF projects financial losses will hit $4.1 trillion with most losses originated from the U.S.:

Worldwide losses tied to distressed loans and securitized assets may reach $4.1 trillion by the end of 2010 as the recession and credit crisis exact a higher toll on financial institutions, the International Monetary Fund said.

Banks will shoulder about 61 percent of the writedowns, with insurers, pension funds and other nonbanks assuming the rest, the Washington-based lender said in a report released today on the state of the global financial system. The fund forecast $2.7 trillion in losses from U.S.-originated loans and assets, compared to its estimates of $2.2 trillion in January and $1.4 trillion in October.

There have already been $510 billion in writedowns but the IMF is projecting $550 billion more by 2010.

Criminal Prosecution for the Financial Meltdown Players - Rep. Barney Frank

Barney Frank wants criminal prosecutions for financial wrong doing related to the Financial crisis.

My question is: will they start with Congress?

U.S. House Financial Services Committee Chairman Barney Frank said he wants to see people prosecuted for wrongdoing related to the financial crisis as lawmakers overhaul regulation of Wall Street.

Frank will call on attorneys general, bank regulators and officials from the U.S. Securities and Exchange Commission to outline plans for prosecuting and recovering funds from those responsible for the crisis, he said today at a news conference in Washington.

According to The Hill:

Once in every 73 to 603 trillion billion years.

Hat tip to Lux Umbra Dei at TPMCafe for catching this one.

October 2008 was certainly a spectacular month in the stock markets. Large daily changes occurred that surprised most investors. Yet, although many investors had not seen such wild gyrations of stock prices for a long time, there was a general sense that this had happened before.

Those of us who studied modern finance theory, however, were truly astonished by the sheer improbability of the events occurring in the stock markets during that fateful month. One of the basic assumptions used in almost all our finance models is that returns are normally distributed. These models are widely used to price derivatives and other complex financial products. What do these models tell us about the probabilities of the events that occurred in October?

Federal Reserve Commits another $800 Billion

It's pouring money. Today the Federal Reserve committed $800 Billion more:

The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.

The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a program of $200 billion to support consumer and small-business loans, the Fed said in statements today in Washington.

$200B is partially aimed at credit card debt. They want consumers to use more credit cards.

Great! Nothing on predatory lending, excessive fees...
yet another $800 Billion, just like that.

FDIC Trying to Get Just $24 Billion For Homeowners, Bush Admin Opposed!

Ya gotta shake your head when just like that Hank Paulson and the Bush administration hand over $250 billion to selected banks yet try to fight any of the bail out money going to homeowners.

Yet, here it is

FDIC publishes $24 billion plan to avert 1.5 million foreclosures by end of 2009

Testifying on Capitol Hill Friday, Neel Kashkari, the Treasury Department's assistant secretary for financial stability, said the aim of the $700 billion plan was to make investments with the hope of getting the money back. That he said, was "fundamentally different from just having a government spending program" that would disburse money with no chance of ever seeing any returns.

Government spending program? No returns? Seems like financing executive pay packages for do nothings who already ran their companies into the ground is the real spending program with no returns.