San Diego Housing Bubble News and Analysis

Doesn't your last statement, "But banks like LoanMax of the rod aycox fame have achieved much mainly by doing market research even in the rural areas and by identifying the prospective customers needs." -- a free market solution -- completely negate the argument for nationalization of the banks?

True enough that in times past banks and other business made business decisions to exclude rural areas due the smaller market potential. However, rural areas today are serviced well by FedEx, satellite internet, and cell service. I don't see any imbalance of economic activity due to distant location. Banking included.

I prefer capitalist solutions over government mandates any day.

What is the context of your thesis? What time frame are you talking about? When did this " intended nationalization of banks in the United States" begin? Five years ago? Fifty years ago? What mechanism was implemented for this "nationalization" to occur? Was it legislative or regulatory? In other words, you may have a point, but without context, I have no idea what it is.

Doesn't everything the Fed do negate the free market argument. They are the invisible hand.

I don't know where this post is coming from but I think the banks could be nationalized next year. They are still insolvent.

http://market-ticker.denninger.net/archi...

The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is "eating", is insolvent. These facts are why the government is lying - they're well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.

(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed values for these loans by 50% or more - as was seen with Colonial.)

It gets better. The FDIC has a negative balance both in its fund balance and the reserve ratio projected for the end of the quarter, which is, big surprise, tomorrow. Oh, and there is this pesky problem that the FDIC has - contrary to its mandate - been issuing bond guarantees for banks, so if and when that banking insolvency is recognized the FDIC will implode into a gravity well also, since it is on the hook for the entire deficiency of those bonds that were issued with its "guarantee" should they default.

Care to argue with the math folks?

Arraya: You and I both know you cannot argue with the math. The problem is that the government has done an exceptional job in ginning the numbers and gulling the public into believing that all is well and things aren't nearly as bad as they really are.

If we were to gain access to actual unemployment numbers, or actual inflation numbers, or actual bank numbers, you'd see wholesale panic in the markets. The entire system is built on trust, or, more correctly, confidence and everyone from Obama on down understands that, once that confidence is blown, its game over.

You have some incredibly dire numbers here in California, and yet you see posters insisting that we've "turned the corner" or "the worst is over" and nearly all of that is based on deliberately erroneous numbers. The truth would be an absolute killer at this point and that's why we'll never get it.

Welcome to the "new normal", as pundits are calling it. Remember: Big Brother loves you.

Agreed, perception control is going full court press with the "everything is rosy" meme.

Still, just a casual glance at the immense amount of defaults coming back and the capital on hand at the banks does not add up. Juxtaposed with the consistent credit contraction that is with us for the foreseeable future. Means to me that at some point we are going to have another panic in the markets when it is exposed. You can only hide reality for so long. After the next panic the sheep wont be so easily coaxed back in.

We are teetering on the brink, of something. I can smell the fear coming back.

Oh, Big brother loves you and wants you to take your vaccine...

Arraya: A good friend works at Wells Fargo and he was telling me how frantically they are working to modify various large commercial RE loans right now.

This, to me, is the "other shoe" about to drop and it looks like the banks will do anything to prevent that from happening, or at least minimize the impact when it does.

According to that FDIC report, the damage is extremely widespread and the FDIC is, in essence, resorting to shaking down the banks for additional funds to keep themselves solvent. The troubled banks list is exploding and yet all we're hearing is that everything is fine and the recession is over.

At some point, fantasy and reality collide. Its been my experience that, invariably, reality ultimately wins.

so, what should i do?

I'm still long gold and silver mines but kind of not relaxed about it.

Scaredy:

I'm thinking of buying solid silver and gold themselves with my savings, not just the mines.

I visited my local purveyor of Krugerrands, Eagles and Maple Leaves yesterday, and he said he'd been visited by a guy who swore Israel is gonna nuke Iran's nuclear enrichment facility. I said my money was on conventional-explosives bunker busters, not nukes (that radioactive cloud would go just everywhere, write off half of the Middle East's oil fields, etc). That said, a few 5000-lb bombs dropping down Ah-maniac-a-jad's throat might be enough to rattle the markets right there.

Allan, are the commercial real estate loans also bundled (Freudian, I initially typed "bungled") into impenetrable CDS's, or can the banks cram down the balance in those cases to at least keep the borrowers alive and cash-flowing into the banks' coffers to some extent?

Cricket: That I don't know. The CRE thing came up in a conversation we were having about various colleagues (in insurance/surety, banking and finance) and their respective takes on the economy.

I can certainly ask, and I would imagine someone like Davelj on this forum would probably have a better handle on that than I.

One interesting thing that did come up relative to CRE was that downtown San Francisco has experienced tremendous turnover in the last five years (something like 75% of the buildings have changed hands through sales) and that many of the new owners are perilously close to default due to lost value and plunging occupancy rates. According to Wells, metro LA and parts of San Diego are facing similar circumstances and the large banks like Citi, Wells and BofA are looking down the barrel in terms of exposure to loss in their respective CRE portfolios. I've known the guy in question for over 20+ years, dating back to my time on the corporate side, and I've never known him to panic or give over to hyperbole, so when he says that he's scared, its genuine.

http://www.washingtonsblog.com/

So what is the real reason that the TBTFs aren't being broken up?

Certainly, there is regulatory capture, cowardice and corruption:

Joseph Stiglitz (the Nobel prize winning economist) said recently that the U.S. government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the U.S. into tougher action

Economic historian Niall Ferguson asks:
Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].

Manhattan Institute senior fellow Nicole Gelinas agrees:
The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span

Investment analyst and financial writer Yves Smith says:
Major financial players [have gained] control over the all-important over-the-counter debt markets...
It is pretty hard to regulate someone who has a knife at your throat.

William K. Black says:
There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .
Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well. There have been no prosecutions of the chief executives of the large nonprime lenders that would expose the “epidemic” of fraudulent mortgage lending that drove the crisis. There has been no accountability...

The Obama administration and Fed Chairman Ben Bernanke have refused to investigate the nature and causes of the crisis. And the administration selected Timothy Geithner, who with then Treasury Secretary Paulson bungled the bailout of A.I.G. and other favored “too big to fail” institutions, to head up Treasury.

Now Lawrence Summers, head of the White House National Economic Council, and Mr. Geithner argue that no fundamental change in finance is needed. They want to recreate a secondary market in the subprime mortgages that caused trillions of dollars of losses.

Traditional neo-classical economic theory, particularly “modern finance theory,” has been proven false but economists have failed to replace it. No fundamental reform can be passed when the proponents are pretending that there really is no crisis or need for change.

Harvard professor of government Jeffry A. Frieden says:
Regulatory agencies are often sympathetic to the industries they regulate. This pattern is so well known among scholars that it has a name: “regulatory capture.” This effect can be due to the political influence of the industry on its regulators; or to the fact that the regulators spend so much time with their charges that they come to accept their world view; or to the prospect of lucrative private-sector jobs when regulators retire or resign.