Treasury Done ‘Very Little’ to Fix Gov’t Foreclosure Prevention Program, Says Watchdog, by Marian Wang, Propublica.org


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Making the argument that the Treasury Department has done “very little” to improve a foreclosure prevention program that has failed to meet its goals, the government’s TARP watchdog testified at a hearing on Wednesday that the case for keeping the program alive has worn thin and is “all but exhausted” .

We’ve documented many of the major weaknesses in the government’s loan modification program—not least of which is its failure to hold banks accountable for withholding permanent loan modifications from struggling homeowners that the program was intended to help.

House Republicans are now considering a bill to end the troubled program. As the Washington Post reports, consumer advocacy groups have argued for fixing the program rather than ending it at a time when so many homeowners still need housing help.

That’s also what the program’s watchdogs have advocated—though they’re now voicing doubts that Treasury will make any meaningful fixes.

“Treasury, it seems, stands alone in defending the status quo,” testified Neil Barofsky, the special inspector general for the TARP program. Barofsky noted that last month, a Treasury official attended a Mortgage Bankers Association conference to discuss enhancements to the loan modification program and said there would be no “major new programs coming out.”

“We may tweak around the edges,” HousingWire reported the official as saying.

The Treasury Department has continued to defend the program, arguing that while the program has fallen short of its goals, it has still helped modify about 600,000 mortgages. Ending the program, Treasury has argued, would hurt the housing market.

“It would cause a huge amount of damage to a very fragile housing market and leave hundreds and hundreds of thousands, if not millions, of Americans without the chance to take advantage of a mortgage modification that would allow them to stay in a home they can afford,” Treasury Secretary Tim Geithner said yesterday.

Geithner may be right about one thing. As our data shows, by the end of last year, the program had given nearly 1.5 million households “a chance” of a mortgage modification through a trial modification. For most, that chance never turned developed into permanent help.

Signs Hyperinflation Is Arriving, by Gonzalo Lira


This post is gonna be short and sweet—and scary:

Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.

 

Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning.
I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly.
I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke.

Therefore, I predicted that inflation would spiral out of control, and turn into hyperinflation of the U.S. dollar.

A lot of people claimed I was on drugs when I wrote this.

Now? Not so much.

In my initial argument, I was sure that there would come a moment when Treasury bond holders would realize that they are the New & Improved Toxic Asset—as everyone knows, there is no way the U.S. Federal government can pay the outstanding debt it has: It’s simply too big.

So I assumed that, when the market collectively realized this, there would be a panic in Treasuries. This panic, of course, would lead to the spike in commodities.

However, I am no longer certain if there will ever be such a panic in Treasuries. Backstop Benny has been so adroit at propping up Treasuries and keeping their yields low, the Stealth Monetization has been so effective, the TBTF banks’ arbitrage trade between the Fed’s liquidity windows and Treasury bond yields has been so lucrative, and the bond market itself is so aware that Bernanke will do anything to protect and backstop Treasuries, that I no longer think that there will necessarily be such a panic.
But that doesn’t mean that the second part of my thesis—commodities rising, which will trigger inflation, which will devolve into hyperinflation—will not occur.
In fact, it is occurring.

The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed. The BLS report on Producer Price Index of commodities is here.

Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009. And the 2010-‘11 winter in the northern hemisphere is approaching.

A friend of mine, SB, a commodities trader, pointed out to me that big producers are hedged against rising commodities prices. As he put it to me in a private e-mail, “We sometimes forget that the commodity markets aren’tsolely speculative. Most futures contracts are bought by companies whouse those commodities in their products, and are thus hedging their costs to produce those products.”

Very true: But SB also pointed out that, hedged or not, the lag time between agricultural commodities and the markets is about six-to-nine months, on average. So he thought that the rise in grains, which really took off in June–July, would hit the supermarket shelves in January–March.

He also pointed out that, with higher commodity costs and lower consumption, companies are going to be between the Devil and the deep blue sea. My own take is, if you can’t get more customers, then you’re just gonna have to charge more from the ones you got.

Coupled to these price increases is the ongoing Currency War: The U.S.—contrary to Secretary Timothy Geithner’s statements—is trying to debase the dollar, so as to make U.S. exports more attractive to foreign consumers. This has created strains with China, Europe and the emerging markets.

A beggar-thy-neighbor monetary policy works for small countries getting out of a hole of their own making: It doesn’t work for the world’s largest single economy with the world’s reserve currency, in the middle of a Global Depression.

On the contrary, it creates a backlash; the ongoing tiff over rare-earth minerals with China is just the beginning. This could easily be exacerbated by clumsy politicking, and turn into a full-on trade war.

What’s so bad with a trade war, you ask? Why nothing, not a thing—if you want to pay through the nose for imported goods. If you enjoy paying 10, 20, 30% more for imported goods—then hey, let’s just stick it to them China-men! They’re still Commies, after all!

Furthermore, as regards the Federal Reserve policy, the upcoming Quantitative Easing 2, and the actions of its chairman, Ben Bernanke: There is an increasing sense in the financial markets that Backstop Benny and his Lollipop Gang don’t have the foggiest clue about what they’re doing.

Consider:

Bruce Krasting just yesterday wrote a very on-the-money précis of the trial balloons the Fed is floating, as regards to QE2: Basically, Bernanke through his WSJ mouthpiece said that the Fed was going to go for a cautious, incrementalist approach, vis-à-vis QE2: “A couple of hundred billion at a time”. You know: “Just the tip—just to see how it feels.”

But then on the other hand, also just yesterday, Tyler Durden at Zero Hedge had a justifiable freak-out over the NY Fed asking Primary Dealers for their thoughts on the size of QE2. According to Bloomberg, the NY Fed was asking the dealers how big they thought QE2 would be, and how big they thought itought be: $250 billion? $500 billion? A trillion? A trillion every six months? (Or as Tyler pointed out, $2 trillion for 2011.)

That’s like asking a bunch of junkies how much smack they want for the upcoming year—half a kilo? A full kilo? Two kilos?

What the hell you think the junkies are gonna say?

Between BK’s clear reading of the tea leaves coming from the Wall Street Journal, and TD’s also very clear reading of the tea leaves by way of Bloomberg, you’re getting a seriously contradictory message: The Fed is going to lightly tap-tap-tap liquidity into the markets—just a little—just a few hundred billion dollars at a time—

—while at the same time, the Fed is saying to the Primary Dealers, “We’re gonna make you guys happy-happy-happy with a righteously sized QE2!”

The contradictory messages don’t pacify the financial markets—on the contrary, they make the markets simultaneously contemptuous of Bernanke and the Fed, while very frightened as to what they will ultimately do.

What happens when the financial markets don’t really know what the central bank is going to do, and suspect that the central bankers themselves aren’t too clear either?

Guess.

So to sum up, we have:

• Rising commodity prices, the effects of which (because of hedging) will be felt most severely in the period January–March of 2011.

• A beggar-thy-neighbor race-to-the-bottom Currency War, that might well devolve into a Trade War, which would force up prices on imported goods.

• A Federal Reserve that does not seem to know what it is doing, as regards another round of Quantitative Easing, which is making the financial markets very nervous—nervous about the Fed’s ultimate responsibility, which is safeguarding the U.S. dollar.

• A U.S. economy that is weak to the point of collapse, where not even 0.25% interest rates are sparking investment and growth—and which therefore prohibits the Fed from raising interest rates, if need be.

• A U.S. fiscal deficit which is close to 10% of GDP annually, and which is therefore unsustainable—especially considering that the total U.S. fiscal debt is well over 100% of GDP.

These factors all point to one and the same thing:

An imminent currency collapse.

Therefore, I am confident in predicting the following sequence of events:

• By March of 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.

• By July of 2011, annualized CPI will be no less than 8% annualized.

• By October of 2011, annualized CPI will have crossed 10%.

• By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.

After that, CPI will rapidly increase, much like it did in 1980.

What the mainstream commentariat will make of all this will be really something: When CPI reaches 5% by the winter of 2011, pundits and economists and the Fed and the Obama administration will all say the same thing: “Happy days are here again! People are spending! The economy is back on track!”

However, by the late spring, early summer of 2011, people will realize what’s going on—and the Federal Reserve will initially be unwilling to drastically raise interest rates so as to quell inflation.

Actually, the Fed won’t be able to raise rates, at least not like Volcker did back in 1980: The U.S. economy will be too weak, and the Federal government’s balance sheet will be too distressed, with it’s $1.5 trillion deficit. So at first, the Fed will have to let the rising inflation rate slide, and keep trying hard to explain it away as “a sign of a recovering economy”.

Once the Fed realizes that the rising CPI is not a sign of a reignited economy, but rather a sign of the collapsing dollar, they will pursue a puerile “inflation fighting” scheme of incremental interest rate hikes—much like G. William Miller, the Chairman of the Fed from January of ‘78 to August of ‘79, pursued so unsuccessfully.

2012 will be the bad year: I predict that hyperinflation’s tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%.

By that point, the rest of the economy—unemployment, GDP, all the rest of it—will be in the toilet. By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression—which is actually kind of funny.

It’s funny because, as you know, I am a conservative Catholic: I of course put absolutely no stock in the ridiculous notion that “The Mayans predicted our civilization’s collapse in 2012!”—that’s all rubbish, as far as I’m concerned.

It’s just one of those cosmic jokes that 2012 will turn out to be the year the dollar collapses, and the larger world economies go down the tubes.

As cosmic jokes go, all I’ve got to say is this:

Good one, God.

Gonzalo Lira’s  Blog
http://gonzalolira.blogspot.com

 

Timothy Geithner forecloses on the moratorium debate, Dean Baker, Guardian


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Treasury Secretary Timothy Geithner is good at telling fairy tales. Geithner first became known to the general public in September of 2008. Back then, he was head of the New York Federal Reserve Board. He was part of the triumvirate, along with Federal Reserve Board chairman Ben Bernanke and then Treasury secretary Henry Paulson, who told congress that it had to pass the Tarp or the economy would collapse.

This was an effective fairytale, since congress quickly handed over $700bn to lend to the banks with few questions asked. Of course, the economy was not about to collapse, just the major Wall Street banks. To prevent the collapse of the banks, congress could have given the money – but with the sort of conditions that would ensure the financial sector would never be the same. Alternatively, it could have allowed the collapse, and then rushed in with the liquidity to bring the financial system back to life.

But the Geithner fairytale did the trick. Terrified members of congress tripped over each other to make sure that they got the money to the banks as quickly as possible.

Now, Geithner has a new fairytale. This time, it is that if the government imposes a foreclosure moratorium, it will lead to chaos in the housing market and jeopardise the health of the recovery.

For the gullible, which includes most of the Washington policy elite, this assertion is probably sufficient to quash any interest in a foreclosure moratorium. But those capable of thinking for themselves may ask how Geithner could have reached this conclusion.

The point of a foreclosure moratorium would be to ensure that proper procedures are being followed. We know that this is not the case at present. There have been several outstanding stories in the media about law firms that specialise in filing documents for short-order foreclosures. They hire anyone they can find to sign legal documents assuring that the papers have been properly reviewed and are in order.

In some cases, this has led to the wrong house being foreclosed. People who are current on their mortgage – or who, in one case, did not even have a mortgage – have been foreclosed by this process. The more common problem would be the assignment of improper fees and penalties to mortgage holders. Or, in many cases, foreclosures have probably occurred where the servicer did not actually possess the necessary legal documents.

A moratorium would give regulators the time needed to review servicers’ processes and ensure that they have a system in place that follows the law and will not be subject to abuse. This is the same logic as the Obama administration used when it imposed a moratorium on deepsea drilling following the BP oil spill.

No one can seriously dispute that there is a real problem. Three of the largest servicers, Bank of America, JP Morgan and Ally Financial have already imposed their own moratorium to get their procedures in order. This is just a question of whether we should have regulators oversee the process or “trust the banks”.

If the argument for a moratorium is straightforward, it is difficult to see any basis for Geithner’s disaster fairytale. If there were a moratorium in place for two to four months, then banks would stop adding to their inventory of foreclosed properties.

But most banks already have a huge inventory of unsold properties. Presumably, they would just sell homes out of this inventory. This “shadow inventory” of foreclosed homes that were being held off the market has been widely talked about by real estate analysts for at least two years. It is difficult to see the harm if it stops growing for a period of time.

Of course, it actually was Obama administration policy to try to slow the process of foreclosure. This has repeatedly been given as a main purpose of its Hamp programme, the idea being that this would give the housing market more time to settle down. Now, we have Geithner issuing warnings of Armageddon if a foreclosure moratorium slows down the foreclosure process.

It doesn’t make sense to both push a policy intended to slow the foreclosure process and then oppose a policy precisely because it would slow the process. While this is clearly inconsistent, there has been a consistent pattern to Geithner’s positions throughout this crisis.

Support for the Tarp, support for Hamp and opposition to a foreclosure moratorium are all positions that benefit the Wall Street banks. I’m just saying.

 

 

http://www.guardian.co.uk/commentisfree/cifamerica/2010/oct/18/mortgage-arrears-banking