The Credit Crisis Seems To Be Easing… Signs Of Recovery Starting To Show

Fantastic news!  And it looks like things are going to be getting better!!!

CNBC

Global interbank lending rates fell sharply Monday, fueling hopes that central banks have succeeded in their massive efforts to unlock credit for cash-strapped banks and borrowers.

Other measures of stress in credit markets ebbed to levels not seen in more than a month….

Money markets plunged into near-chaos a month ago, contributing to U.S. and European governments’ taking over part or all of some banks and financial companies.

However, credit availability appeared to be on the increase recently.

Encouraged by better credit conditions, traders shifted money to stocks and riskier investments from cash and low-risk U.S government bills.

The move sent Treasury bill rates to their highest in about a month and demand for new six-month bills to its weakest since April.

Less jittery banks charged each other less for dollars in the unsecured lending market.

The London interbank offered rate for overnight dollars fell to a 4-year low, drifting closer to the Fed’s target federal funds rate of 1.5 percent.

Traders widely expect the Fed to trim its target rate on overnight loans of surplus reserves between U.S. banks by at least another quarter percentage point after its two-day policy meeting next week.

More telling about a credit thaw was the plunge in longer rates suggesting banks grew more comfortable about lending rather than just hoarding cash….

Overnight rates on unsecured CP dropped below 1 percent on Friday, while 30-year unsecured CP rates averaged as low as 1.43 percent, according to Fed data released Monday.

More help is on the way in the CP market, where many companies had relied on funds for their day-to-day operations.

The Fed will launch its program to buy high-quality CP next Monday.

Ok, so a translation…

Basically, 3 things have happened and 1 more thing is coming…

First, banks began to lend eachother money again and felt a bit better about it.  The proof of that is in the interest rates they are charging eachother.  The inter-bank rates are dropping, which means they feel the risk of loaning each other money is falling.

Second, traders felt better about the economy in general, stopped hoarding their money away and started investing in the stock market and in the general economy again, pushing the markets up.  The fear of risk is going down and money is starting to flow again… thus the 400+ point jump in the DOW.  This is fantastic news!

Third, banks are also feeling better about companies and are loaning to businesses once again.  Companies often borrow money overnight to meet their payroll and day-to-day operation expenses.  This short term business borrowing for operations purposes is called the “CP” market.  It was squeezed over the last month or two because no one knew who was solid and who was not.  Now the banks are now feeling better about the wider economy and lending in the “CP” market again and feeling less risky about doing it, as is evidenced by the rate drop in this market sector as well.

Fourth is the coming government investment in the CP market which will improve the lending rates, margins and volume.  This is great news for businesses as it will make their operating costs cheaper and provide much needed liquidity, and thus making the wider economy much more solid!

All in all, we had a rough couple of months, and while there are still a few things to shake out, the foundations of the economy are all back into place and getting on to solid ground again!

The political implications of this bode well for McCain and not so well for Obama, who has banked (pardon the pun) on a failing economy to put him in the White House.

If the stock market continues to improve steadily, and fears of economic collapse dissipate in the next couple of weeks, there could be a major shift in the polls.

The Final Debate… My Verdict And A Poll

McCain Won.  Hands Down.

He was weak on Healthcare, but whipped Obama’s ass on everything else.

And how friggin difficult would it have been for Obama just to admit that John McCain is not a racist and is nothing like Gov Wallace?

Horrible.

Best line of the night…  “I am not President Bush.  If you wanted to run against him, you should have run 4 years ago.”

Greatness.

What do you think?

UPDATE: Yahoo – “Among respondents not identified with either major political party, McCain was judged tonight’s winner, 51-42 percent.”

Nice!

Analysis Of “The McCain Housing Plan”

I will start off by saying that I think that McCain is on the right track with this one.  This is the best proposal I have heard thus far (other than what the Fed is doing currently with commercial paper) to solve the economic crisis America faces.

First, a bit of an explanation of the root problem…  and I am going to simplify as much as possible, talking about the major themes (and ignore important but smaller ones…)

The fundamental cause of the problems with the banks and the economy as a whole originate in the housing crisis.

The housing bubble led to greater and greater numbers of risky loans and exploded when Fannie Mae and Freddie Mac started acting much like a hedge fund and invested in the very paper they were insuring.  This led to an explosion in the market and decreasing underwriting standards, especially when Fannie Mae and Freddie Mac made the “Alt A” programs available. 

The banks began to group these loans (aka bank debt) together into packages and sell them off to other banks.  The bank that bought them took these packages of loans  and divided them into “risk tiers” and sold those tiers as derivatives.  These banks then grouped the derivatives together and divided them further, until the original group was chopped into so many loans it was impossible to tell what was where.

This, in theory, should have minimized the risk associated with the loans.

Because of the grouping and dividing and selling and grouping and dividing and selling, virtually all the banks were heavily invested in these MBSs (mortgage backed security) and CDO’s (collateralized debt obligation.)

Then the economy slowed…  and housing was the one beacon of light in a dimming economy, so the banks, hedge funds, investors, and consumers invested even more heavily in real estate.

As time went on, the banks began to discover that a much larger than expected percentage of the loans were given to people that should not have gotten them.  The bulk of these “bad loans” were found in the Alt A realm that banks would not have normally invested as heavily in, but for the actions and rules of Fannie and Freddie.

With the economy continuing to slow, eventually the housing sector peaked and the dam broke. 

Foreclosures began to happen at an epidemic rate because the people that should not have been in the loans they were given couldn’t pay.

So the banks/hedge funds and especially Fannie/Freddie realized that they should not have been offering all these loans tightened up their lending standards because they couldn’t continue to offer the crap loans they had been offering, which would have made the hole they were in that much deeper.

The side effect of this was that, especially in a slowing economy, fewer and fewer people could qualify for new loans to buy all the houses that were pouring on to the market from new construction projects (at an all time high) and from massive foreclosures.

The housing market glutted, the banks began to dump the foreclosures for next to nothing and all the other houses sat on the market for a year or more. 

With only the foreclosures selling, they were the only sales to peg the prices of houses against and property values started dropping like crazy, especially in places where the bubble was biggest…  CA, FL, NV.

This has caused the secondary crisis…  there are millions upon millions of people upside down on their houses right now.  Millions.

So because of the problems with 10-15% of the loans, and the foreclosures they led to, the values of the houses with credit worthy people now had problematic loans because their property was worth less than the mortgage was for.

Essentially, the banks no longer knew what any of their loans were worth, because the assets tied to the loan weren’t worth enough to cover the outstanding debts, increasing the balance sheet debts of the banks by billions and billions and billions of dollars.

This made the banks “uncreditworthy” and so they stopped loaning money to eachother, leading to near of total collapse of a huge number of banks.

So, in order to solve the valuation problem, keep people in their homes and prevent more foreclosures, and to prop up the prices of homes as much as possible, earlier this year, the Congress approved a program called the “FHA Secure.” 

This program basically works like this…  if you have a $300,000 loan and your house is only worth $225,000 now, if the bank will lower the balance to the $225,000 then the FHA will insure the loan, making the loan more immediately marketable.

The bill and the program went into effect October 1. 

Not a single bank has implemented this plan to date.

The problem is two fold; 

First, it is voluntary…  the banks don’t have to do it.

Second, it requires that the banks take HUGE writedowns and though it may help even out the bottom line in the long run, in the short term those HUGE writedowns would probably kill them at this point…  especially perceptually.

Nobody wants that.

Ok, so now that we are caught up to present times, we can talk about McCain’s housing plan.

John McCain has basically taken the FHA Secure program, and instead of making the banks take the writedowns and essentially forfeit hundreds of billions of dollars…  McCain wants to re-allocate the “Bailout” money to buy out the negative equity on these people’s houses.

Why is this great?

1.  The estimated cost, about $300 Billion…  A number that is less than half of the “Bailout” which only helps banks/Wall Street and does nothing directly for mainstreet.

2.  It keeps people in their homes, reducing their balances and their payments.

3.  It helps prop up housing prices, or at least stabilize them, because it will lead to fewer foreclosures.

4.  It bails out the consumer and the banks in one fell swoop. 

Helps the folks, helps the banks.  Bingo.  I think he has something right there!

Read more here

Brilliant.

As I said, this is the best idea to solve the crisis I have heard so far (other than the fed buying commercial paper… also brilliant.)

 

(and yes, it’s basically Hillary Clinton’s plan, but don’t tell the Republicans LOL)

Why McCain’s Bi-Partisanship And Experience Are Essential To Economic Solutions

We face serious problems and we need serious leaders with serious solutions.  We are on the brink of total economic collapse, and our collapse may trigger a world wide depression on a scale like we have never seen before.  The worst part is that the public is still behind the times on the crisis.  Mortgages were so last year.

The real looming monster in the room that no one wants to admit is there yet are the credit default swaps.  If these start going down the tubes, we are completely screwed.  Completely.

The problems we face go so far beyond the basic problems of the mortgage crisis, it is hard to even describe the real problems we face in layman’s terms.

On a basic level, everyone broke up their risky stuff into little tidbits and sold them to a bunch of different places…  spreading around the risk, therefore supposedly lowering the risk exposure for each party.

Then, at the same time, everyone was buying other places tidbits of risk and paying a premium…  because the returns were big and the overall risk was low due to it being spread over a group rather than a single party.  And the risk was further minimized because they owned tidbits of risk from several different parts of the financial sector and from several different companies, so if one part had trouble, no big deal…  it was balanced out by all the others.

You see, the only way all these little tidbits could pose any real problem is if the whole sector were to grind to a screeching halt.  And that could never happen…  could it?

Instead of having individual companies running into problems and shutting down, now everyone owns a part of everyone else’s risk…  and in the aggregate, those little tidbits of risk add up to a lot of risk, especially if the whole financial system becomes threatened…  you know, like now.

So the potential for future problems is immense.  Mortgages are just the beginning.

We need a leader with honor, experience and a willingness to work with both sides of the aisle.

John McCain has been in DC and part of the solution for the S&L Crisis, 1987′s Black Friday, the Tech Bubble burst, the collapse after Sept 11th and now the Mortgage Meltdown.  He has experience in dealing with both the delicate political and tenuous economic situations.

In addition, much like Obama’s touted “foresight” and speech on Iraq, John McCain put forth legislation in 2005 and warned about the coming meltdown.  If we are to give Obama credit that his initial opposition to the Iraqi invasion speaks to some sort of judgement, then this must be trumped by McCain’s prediction of the troubles in the mortgage industry because no one will dispute that the troubles with the economy are by far the most important.

Barack Obama, on the other hand, not so good on the judgement tip.  Barack Obama not only stayed silent on the coming crisis, but supported the very groups and people responsible for the crisis.  Among those in Obama’s inner circle you can find two former heads of Fannie Mae and the grand dame and architect of the sub-prime mortgage crisis.  In addition, Obama has been one of the top recipients of contributions from Wall Street…  second only to Chris Dodd.  And then there is ACORN…  Oh, God…  I don’t even know where to begin with these scam artists…

Barack Obama’s complete ignorance and total naivete’ when it comes to real estate and economics has a long track history of devastation.  From the boarded up tenements his buddy Rezko left all over the southside of Chicago to the meltdown of the mortgage industy cheer on by his friends, advisors and former employers…  Barack Obama is bad for housing and bad for the economy.

This is a big crisis, one that the majority of Americans agree is the biggest crisis we face.  We cannot leave it to an ignorant neophyte with a history of destructive decision making that has shown little propensity to change his stance, even less leadership, a near complete lack of bi-partisanship and an affinity for earmarks.

Barack Obama didn’t even want to go back to DC to deal with the mortgage crisis in the first place, didn’t even bother to contact any of the Democrats that were on the fence the morning of the bailout vote…  but bi-partisanship and an aversion to earmarks are essential.

John McCain has a long and well documented history of bi-partisanship, one which is lauded by just about everyone in DC including both Hillary and Bill Clinton as well as Joe Biden.

In addition, these bills dealing with the economy need to be free of the clutter, partisanship and politics that earmarks represent.  John McCain has never once asked for an earmark…  ever.

This stands in stark contrast to Obama and his friends, who wanted to earmark the bailout bill to give ACORN, Obama’s former employer, BILLIONS of dollars and who sunk the vote through their rabid partisanship (ie Pelosi and her rant.)

When facing the precipice of complete economic meltdown, we need someone that has experience, someone that listens to all sides, has the foresight to recognize coming problems, works in a bi-partisan way and does not use crisis situations to earmark and gain political advantage.

We need John McCain.

Gore Lays Down Challenge… Carbon Free In 10 Years!

I Love This Guy.

 

Basically, if the US makes the conversion to 100% carbon free electricity generation, it solves all our nations problems…

The economy, the environment and national security…  and you know what?  He is most probably right.