SeriousBull

Time to strengthen oversight of Mortgage Lending…Duh!

Tags: BOA + C + Freddie Mac + Ginnie Mae + Treasury + WB

One thing you can count on from government is that they will eventually notice a problem and arrive at cogent mix of regulation and scapegoat once its too late.  Great that Treasury Secretary Paulson today wants stronger oversight of mortgage lenders to avoid

future debacles and credit crisis. Bad that he and the others responsible for the financial solvency of the United States didn’t notice that when things were obviously awry, when regulatory oversight was missing, or when housing inflation that could bankrupt the government ws rampant and being government guaranteed–think GNMA. 

Good likewise that all these savants are busily working to stave-off a collapse of the financial system, but bad that at the same time they fail to see that Banks, so desperate to make profits to offset losses, are gouging the consumer, hoarding the rate cuts, and foreclosing at such record-breaking rates that they are setting off a consumer led recession. One would expect more. One would expect them to notice that since two-thirds of the US economy is driven by consumer spending that sending out (loan) checks and offering counseling to consumers is hardly what it will take to avert a deep recession. The tale-tale sign that these giants of finance still don’t get it is contained in Paulson’s recent admonishment that banks “revisit their dividend policies.”  True banks might need to cut dividends to accelerate profitability and to replenish their capital reserves, but again, what about the consumer, who you need?  What about the those living on fixed income who have been advised to invest with a “total return” strategy, who have accepted some market risk while buying depressed bank stocks for their above-average dividends?  These government savants are still not thinking about the extra burden they are getting ready to inflict on them. Nor are they thinking about the stampede out of bank stocks that will surely occur if banks confronting insolvency have nothing to offer investors.

The message here is two-fold. First SELL, SELL, SELL your Citibank, Bank of America, Wachovia, etc. These stocks will definately fall if dividends are slashed or eliminated. And secondly, we’re headed for crisis. Not just because of the mind-freeze in Washington that notices but acts too late. But also because of the failure to address inflation at the consumer level, the failure to understand that people with high debt, or those without jobs, or those living on less income, aren’t good consumers.  No doubt crisis is on the way because of their failure to head off the mounting losses compounding at GNMA that mean huge consumer tax ramifications later, and perhaps just at the time of dire need to stimulate the economy.  Yes, crisis is around the corner because incredulously Washington is beginning to bailout mortgage-lenders by buying up (ok, swapping) their failed and de-valued mortgage-backs in exchange for treasuries supposedly on a 28 day loan. (Interested in a bridge across…?).  Moreover crisis is looming because Congress acts politically, but not intelligently. They have failed to recognize that the people responsible for this credit crisis are the same people now attempting to fix the problem for themselves. The Congress refuses to work together or with the Executive branch out of political deference and undoubtedly won’t work together until crisis engulfs us.  So the second message in Paulson’s speech, just after SELL, was, Hold on, Crisis is coming!   God Help US.  What kind of message is that for the markets?

March 13, 2008 - Economy, Markets, Politics